USDCAD Price Outlook:
- USDCAD may be due for a return to form should crude oil prices continue lower
- A confluence of nearby support will help bolster the US Dollar
- Retail traders remain net short USDCAD and this can help to keep the long side attractive. Find out how to utilize IG Client Sentiment Data with one of our Sentiment Walkthrough Webinars.
USDCAD to Rise Should Canadian Dollar Fret Crude Oil Prices
A series of dovish remarks from Federal Reserve officials have pressured the US Dollar in recent days, sending it lower versus its Canadian counterpart. The chances of a rate cut by year-end have soared, with some analysts pricing in up to three by early 2020. Still, the Federal Reserve is not alone in its dovishness. This week the Bank of Australia cut its interest rate and last week the Bank of Canada struck a rather dovish tone at their own rate meeting.
That said, it seems like a race to the bottom for central banks and their respective interest rates – a theme that could bolster the US Dollar as it looks to enjoy a sort of “best of a bad situation” bonus. Aside from monetary policy, the Greenback may enjoy a tailwind versus the Canadian Dollar from the continued deterioration in the price of crude oil. As a large factor of the Canadian economy, the commodity’s plummet to $50 does not bode well for growth outlooks and CAD strength.
USDCAD Price Chart: Daily Time Frame (October 2018 – June 2019) (Chart 1)
From a technical perspective, USDCAD boasts a confluence of nearby support - first provided by two Fib levels around 1.3374 and the 100-day moving average. Secondarily, the pair will look to the 200-day moving average and an ascending trendline of support from January 2018 – a line which has not been broken since inception.
With that in mind, invalidation levels for a bullish USDCAD position exist underneath the trendline and the subsequent Fib level - near the 3-month low of 1.3250. Given that the premise of the trade is based on long-term Dollar strength continuing, a break beneath 1.3250 would seriously dent the trade’s outlook.
Interested in how other traders are positioned on USDCAD? Check out our Free IG Client Sentiment Data.
Above current price action, several interesting levels remain for topside target potential. The March swing-high around 1.3465 could be looked to as an initial target. Beyond 1.3465, the ascending trendline marking the tops in each of March, April and May. Initial areas of confirmation are therefore around 1.3500 – a level that posed considerable resistance throughout the month of May. As price action unfolds and the trade progresses, follow @PeterHanksFX on Twitter for updates and technical levels.
Finally, IG Client Sentiment Data reveals that traders remain net-short USDCAD. Since we typically use retail trader positioning as a contrarian indicator at DailyFX, it suggests prices may continue to rise – but the signal has weakened with bearish traders pouring out of the pair and net-positioning approaches parity. Find out what this may mean for the trade, how to incorporate this tool into your own strategy with my Client Sentiment Walkthrough Webinar.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
DailyFX forecasts on a variety of currencies such as the US Dollar or the Yen are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.