The lower study on the attached chart shows stochastic momentum indicators trending lower, although have yet to reach oversold territory and signal that further downside may be possible.
While not shown, the noncommercial net-long position in the Canadian dollar futures increased for the sixth time in seven weeks as of the CFTC’s June 1 statistics, while the 48,772-contract net-long position is the largest held since November 2019 when 54,002 contracts was reported.
Dollar bulls may lose interest following today’s Bank of Canada monthly rate decision and policy release. The bank left its key rate unchanged at 0.25% as expected, while indicating it may remain unchanged until recovery is reached in the second half of 2022. The Central Bank sees recent inflation as transitory, or temporary, lowering chances of a rate hike that would support the Canadian dollar, while the bank will continue its program of purchasing federal debt on a weekly basis, a move that will continue to weigh on interest rates, viewed as favourabe news for borrowers.
It will take a break below $0.826105 to signal a change in direction, while technical analysis theory would indicate the potential for a continued move by an amount equal to the width of the recent range, or 80 basis points to $0.8160 CAD/USD. The 33% retracement of the move from the 2020 low to 2021 high is calculated at $0.7836 CAD/USD, which could be viewed as a longer-term downside target in the event of a major correction.
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