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Q4 Top Trades - Bullish USD/CAD

Q4 Top Trades - Bullish USD/CAD

Tammy Da Costa, Analyst

Q4 Top Trades:

  • This is an installment taken from our DailyFX Top Trades series for Q4.
  • To access the entire guide with Top Trades from the DailyFX team, click on the link below:

A wide range of both systemic and geopolitical risks will likely impact USD/CAD price action for Q4 which could drive the pair in either direction. With the Federal Reserve now expressing a slightly more hawkish tone, uncertainty surrounding the health of China’s economy may support the safe-haven greenback for the remainder of the year.

Commodity Prices Support CAD Bulls Probing Suppliers to Increase Supply

The Canadian Dollar has benefited from soaring commodity prices, pressuring USD/CAD. With the Federal Reserve suggesting that rate hikes may begin sooner than expected, the US Dollar could outperform the CAD despite supply shortages and rising energy prices.

With rising energy prices now being passed on to consumers, mounting pressure for central banks to scale back on Quantitative Easing has resulted in a more hawkish rhetoric from Fed Chair Jerome Powell, threatening CAD strength.

China Debt Crises May Support the US Dollar as Investors Seek Safe-Haven Currencies

Meanwhile, heightened geopolitical tensions and fears surrounding the health of the Chinese economy following the collapse of property developer Evergrande are additional factors to consider for Q4. Although it is unlikely that China will allow its economy to collapse as a result of this event, fears of further bankruptcies and the implications it may have on developing markets could result in rising demand for risk-off assets, supporting the safe-haven Dollar.

USD/CAD Technical Analysis

From a technical standpoint, price action for Q4 may continue to trade within confluent zones, formed by the key Fibonacci levels of the historical move (2002 – 2007).

After rebounding off of the May 2021 low at the key psychological level of 1.200, USD/CAD has enjoyed four months of consecutive gains, finding comfort above the 50% retracement of the above-mentioned move at 1.2630.

On the monthly time frame, the Commodity Channel Index (CCI) currently remains near the lower bound of its range suggesting that the major currency pair may still extend its recovery if bulls are able to maintain the momentum of the upward trajectory.

USD/CAD Monthly Chart

usdcad price chart

Chart prepared by Tammy Da Costa using TradingView

On the weekly time-frame, USD/CAD has continued to bounce between key Fibonacci levels of the September 2020 – May 2021 move which may continue to provide support and resistance for the pair for the remainder of 2021.

Although the CCI is currently threatening overbought territory, the fundamental backdrop may provide bulls with enough momentum to drive prices back towards the 61.8% retracement at 1.287 and a potential retest of 1.300.

USD/CAD Weekly Chart

usdcad price chart

Chart prepared by Tammy Da Costa using TradingView

The challenge for both the Fed and the Bank of Canada will be to ensure that the withdrawal of QE does not disrupt financial stability.

Although it is probable that fundamentals will remain a prominent catalyst for USD/CAD price action for the duration of the year, I believe that pessimism over China’s economy and efforts to reduce commodity prices may expedite further USD gains, with the systemic, persistent trend remaining relatively bullish.

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

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