Traders are understandably on edge given the situation in Afghanistan heading into a new week, and that general unease is reflected in the forex market, where the “safe haven” triumvirate of the Japanese yen, Swiss franc, and US dollar are the strongest major currencies while the more risk-sensitive commodity dollars (the Australian, New Zealand, and Canadian dollars) are the three weakest majors.
Among those currencies, the pairing that may be the most interesting this week is USD/CAD. Our internal data shows that our traders are betting heavily on continued gains in the unit, with 67% of open positions on the long side. While positioning extremes can occasionally present contrarian opportunities to “bet against the crowd”, traders more often tend to follow (and in so doing, extend) budding trends as we’re seeing in USD/CAD now.
Looking at the chart, the pair formed a “rounded bottom” pattern through May and June, marking its low for the year so far, and is now finding support at its rising 50-day exponential moving average (EMA). Rates briefly spiked above the 200-day EMA all the way up to test 1.2800 in late July, but since then have bounced between the 50- and 200-day EMAs:
USD/CAD Daily Chart
Source: TradingView, StoneX
With traders adding to their bullish positions and prices trending higher in the short term, a break back above the 200-day EMA at 1.2600 could prompt bulls to target the multi-month high near 1.2800 later this month. Meanwhile, it would likely take a break below the 50-day EMA to cause bullish traders to close their positions and flip the near-term bias in favor of the bears.
Finally, it’s worth noting that the North American pairing is in for a big week from a fundamental perspective. Today brings US retail sales and industrial production data, as well as a speech from FOMC Chairman Jerome Powell, followed by UK CPI and the FOMC minutes on Wednesday. To close the week, USD/CAD traders will keep a close eye on the Philly Fed Manufacturing index and US initial jobless claims on Thursday, with Friday’s UK retail sales report putting a bow on a busy week.