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Canadian Dollar Price Forecast: Will USD/CAD Weakness Persist?

Canadian Dollar Price Forecast: Will USD/CAD Weakness Persist?

Peter Hanks, Strategist

Canadian Dollar Price Outlook:

  • USD/CAD broke beneath crucial support earlier this week, opening the door to further weakness
  • The greenback stands on shaky footing as monetary policy looks to remain accommodative and politicians in Washington discuss further covid-related stimulus
  • Further still, IG client sentiment reveals USD/CAD could fall further since retail traders remain net-long
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Canadian Dollar Price Forecast: Will USD/CAD Weakness Persist?

The US Dollar has bled lower for months in the wake of its initial surge during the early days of the coronavirus pandemic. With the Fed committed to maintaining its accommodative stance and talks of further fiscal stimulus taking place in Washington, the case for further USD weakness can be made. On the other hand, a healing global economy has seen sectors like energy and risk-sensitive currencies like the Canadian Dollar recover lost ground.

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Together, these themes have helped push USD/CAD lower for months and a recent break beneath crucial support might have opened the door for further losses. To that end, 1.2929 – the November 9 swing low – had served as an important level working to stave off further losses but with price plunging beneath, USD/CAD seems vulnerable to a continuation lower.

USD/CAD Price Chart: Daily Time Frame (September 2018 – December 2020)

usd/cad price chart daily

Should bears look to drive the pair lower, subsequent support is rather sparse until the 1.2800 area which coincides with the October 2018 swing low. That being said, USD/CAD has already fallen considerably and shorter-term recoveries are not out of the question. Given the degree to which USD/CAD has slipped over the last few months, however, prior support might serve as resistance going forward making attempted recoveries all the more arduous.

USD/CAD Price Chart: 4 – Hour Time Frame (June 2020 – December 2020)

usd/cad price chart

As a result, potential resistance resides around the 1.2952, 1.3000 and 1.3100 levels which have each shown their ability to influence price in the past – albeit to varying degrees. Still, the longer-term fundamental outlook and recent price trend in the last few months result in a bearish bias in my opinion, making USD/CAD a candidate for short exposure despite recent losses.

USD/CAD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 5% -9% 0%
Weekly 21% -4% 13%
What does it mean for price action?
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As it stands, 1.2800 is an initial area of interest and IG client sentiment data reveals retail traders remain net-long suggesting USD/CAD could continue to fall since we typically take a contrarian view to crowd sentiment. With the pair posting a fresh lower-low at the time of this article’s publication, yet another blow has been dealt to its technical standing but patience might be warranted as a pullback could create possible entry points.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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