USD/CAD Forecast: Gravestone Doji denotes indecision, OI in CAD calls rises
The USD/CAD pair faded the spike to 1.2591 and ended with marginal losses near its daily low of 1.2513 on Tuesday. The price action left a 'gravestone doji' candle on the daily chart, which signals indecision in the market place.
Meanwhile, the CAD/USD Nov expiry options data published by the CME show increased demand for CAD calls on Tuesday.
Is the rally from Aug low of 1.2061 over?
Daily chart
Gravestone Doji signals exhaustion and does not necessarily mean trend reversal. Moreover, the trend change is determined by the price action on the following day.
The spot did drop to 1.2487 earlier today, but fresh bids pushed it back above 1.25 handle. Currently, it is trading at 1.2527 levels. Bearish gravestone doji reversal would be confirmed if the pair ends on a negative note today and below the session low of 1.2487 (given the strong recovery).
A bearish gravestone doji reversal confirmation would open doors for a dip below 1.24 handle (psychological support + 50-DMA).
The gravestone doji also marks a failure to hold above the downward sloping 100-day moving average. Thus, bulls need to be cautious.
Bullish Scenario - Only a nice base building around 1.24 handle followed by a break above 1.25 would open doors for a sustained rally towards August high of 1.2778.
Open Interest in CAD calls jumped on Tuesday
Tuesday's gravestone doji formation (bullish exhaustion) on the USD/CAD was accompanied by a rise in the CAD calls.
The CAD/USD Nov expiry options data published by the CME shows-
| Call Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 10,999 | 1,001 | 665 | 46 | 10,334 | 955 |
| Put Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 14,797 | 1,548 | 6,594 | -73 | 8,203 | 1,621 |
- The open interest (OI)/open positions in CAD calls jumped by 241 contracts on Tuesday,while the open positions in CAD puts improved by 110 contracts.
- Clearly, investors boosted bullish bets on the CAD (bearish bets on USD/CAD). The cheap out of the money CAD calls are being preferred as hedge instruments.
View
Currently, being on the sidelines is the best option, although technicals are aligned (gravestone doji + rejection at downward sloping 100-day moving average) slightly in favor of the bears.
Options data shows investors have taken note of the bullish exhaustion in the USD/CAD pair as indicated by the gravestone doji pattern.
A big rise in CAD calls (bearish bets on USD/CAD) could be seen if the spot closes below 1.2487 today.