Bulls Beware - Elevated Chance of 200 Pip Sell Off

2 weeks ago we published an analysis for positioning long the USDCAD. We noted “if we successfully break above 1.28…then I’m eyeing 1.30-1.31”.

We can now dial in with more precision where this zone is. There is an elevated probability we’ll see a reaction lower taking place in the 1.3050-1.3150 price range. This doesn’t mean prices WILL trade lower. What it means is the trend is up and those positioned to the long side need to manage their risk. If you’re not long, an ensuing dip near 1.27-1.28 will offer an opportunity to position long.

Retail traders have been net short at FXCM on the USDCAD since June 18. Since that time, price has rocketed higher about 800 pips. Sentiment continues to be heavily shifted towards shorts as the ratio is -2.7 and open interest in short positions has grown 9.5% since last week. So it is the technical wave relationships that are flashing the caution sign now. If prices move above 1.3150, the door is open towards 1.34.

However, be mindful that the retail traders might actually get this one right and prices may sell off a bit. Look for the red support line to break and for SSI to shift more positive to be additional indications of a larger sell off coming.