Technical Tools

Support and resistance (S/R). Price levels, trendlines and Fibonacci retracements. Price action, candlestick and chart patterns. Simple moving averages (SMA). Commitments of traders (COT) indicator, which displays speculative positioning in FX futures market, used as a proxy for speculative positioning in spot FX market.

Weekly Chart


Loonie started the year with a sharp rally and topped out near 76.4% retracement of the 2002 - 2007 downtrend. The reversal was even more impressive - the pair lost 2200 pips in less than three months. 1.25 was breached but held. The pair has been contained between 50 and 100 week SMA since.

Speculative Positioning

Net position of non-commercial traders in the Canadian Dollar futures market swung to the long side in April and is currently sitting at 12.5K, down from 23.2K a month ago, which was near the highest level in more than three years. Both longs (46.1K) and shorts (33.6K) are slowly edging up.

Daily Chart


The pair is trading in a wedge-like formation between 1.2450 and 1.3250 though the bulk of price action unfolded between 1.2750 and 1.3150. A sustained break of either of these extremes will provide direction for the next leg. The bias is turning bullish at the moment after a failed attempt at the downside.

Fundamentals

There is a strong correlation between the pair and the oil, which is particularly notable in times of extreme volatility in the latter. Monetary policy by the BOC seems to be in the passenger seat at the moment. A lot depends on the Fed and their policy trajectory.

Prediction

Taking into account all the above-mentioned factors, I expect the pair to be trading near 1.3075 towards the end of the forecast period which will conclude on the 3rd of October, 2016, at 12:00 GMT. Ideally, the pair will follow the expected price path as outlined on the charts.
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