Canadian Dollar May Weaken Alongside Crude Oil Prices Based on Retail Trader Positioning

CANADIAN DOLLAR, USD/CAD, CRUDE OIL, TECHNICAL ANALYSIS, RETAIL TRADER POSITIONING – SENTIMENT WEEKLY

  • Retail traders are selling USD/CAD and buying crude oil
  • This positioning can at times function as a contrarian sign
  • Are further gains in store for USD/CAD as WTI weakens?

Lately, the Canadian Dollar has been weakening against the US Dollar amid a simultaneous drop in crude oil prices. At times, the Loonie can be correlated with energy prices. Instead of betting against CAD, however, the IG Client Sentiment gauge (IGCS) has been showing that retail traders have been selling USD/CAD. Meanwhile, they have been buying crude oil. IGCS can at times function as a contrarian indicator. With that in mind, is more pain ahead for CAD and crude oil?

USD/CAD SENTIMENT OUTLOOK – BULLISH

The IGCS gauge shows that about 40% of retail traders are net-long USD/CAD. Since most traders are biased to the downside, this suggests prices may continue rising. This is as upside exposure has decreased by 7.72% and 0.99% compared to yesterday and last week, respectively. With that in mind, the combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias for USD/CAD.

Canadian Dollar May Weaken Alongside Crude Oil Prices Based on Retail Trader Positioning

DAILY CHART

The Canadian Dollar finds itself sitting at its weakest point against the US Dollar since July. USD/CAD faces the 1.3154 – 1.3224 resistance zones. Clearing it would expose peaks last seen from September/November 2020. The latter makes for a range between 1.3320 – 1.3421. In the event of a turn lower, keep a close eye on the near-term rising trendline from August. It could reinstate an upside focus. Otherwise, clearing the 1.3052 – 1.3082 support zone exposes 1.2895.

Canadian Dollar May Weaken Alongside Crude Oil Prices Based on Retail Trader Positioning

Chart Created in Trading View

CRUDE OIL SENTIMENT OUTLOOK – BEARISH

The IGCS gauge reveals that about 80% of retail traders are net-long crude oil. Since most traders are biased to the upside, this hints that prices may continue falling. This is as upside exposure increased by 7.69% and 19.38% compared to yesterday and last week, respectively. With that in mind, the combination of positioning data seems to warn that further pain might be in store for crude oil.

Canadian Dollar May Weaken Alongside Crude Oil Prices Based on Retail Trader Positioning

DAILY CHART

Crude oil prices are back down to lows from early August. This followed a false breakout above the 92.956 – 95.110 inflection zone as the 50-day Simple Moving Average (SMA) held as resistance. Immediate support seems to be 85.387, which is the former high from October 2021. Clearing it would open the door to facing the 78.6% Fibonacci retracement level at 76.787. Otherwise, keep a close eye on the 20- and 50-day SMAs, which could reinstate a downside trajectory.

Canadian Dollar May Weaken Alongside Crude Oil Prices Based on Retail Trader Positioning