Canadian Dollar Price Outlook: USD/CAD Nearing Confluent Support Zone
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Canadian Dollar Price Outlook:
- USD/CAD has continued its Q4 retreat, pushing down to fresh two-month-lows with the yearly-low now very nearby.
- Canadian elections are currently taking place with results expected to begin coming in tonight. It’s been an abnormal election cycle in Canada with tensions very high as PM Justin Trudeau attempts to hold on to power against Conservative Party challenger, Andrew Scheer.
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Canadian Dollar Rallies into Canadian Elections
Elections are currently underway in Canada with results expected to begin coming in this evening. Incumbent Justin Trudeau is facing a stiff challenge from Conservative Andrew Scheer, with polls showing a veritable toss-up at this point.
In USD/CAD, the pair is now trading at fresh two-month-lows after Canadian Dollar strength has taken-over in the past couple of weeks, helped along by a visibly weak US Dollar that continues to show tonalities of the Q4 USD reversal. USD/CAD is now trading very close to the yearly low that was established last October. Between current prices and that yearly-low is a chasm of support that was carved-out in mid-July, just above the psychological level of 1.3000.
This scenario was looked at a couple of weeks ago just before USD/CAD began to turn-lower. Price action in the pair is now fast approaching a trend-line projection as generated from 2017 and 2018 swing lows.
USD/CAD Daily Price Chart
USD/CAD Nearing a Confluence of Support
As looked at above that longer-term trend-line projection is coming into play. But there are other reasons to urge caution from chasing the pair lower at the moment, such as the 1.3066 Fibonacci level or the 1.3000 psychological level; which was last in-play mid-July before sellers shied away, allowing for a vigorous retracement to follow in early-August. Collectively, this could be enough to cause traders to take a step back on USD/CAD, with that prior support zone from 1.3132-1.3150 retaining some interest for retracement potential up to a lower-high.
USD/CAD Four-Hour Price Chart
It’s notable that the pullback in DXY has been more aggressive than what’s shown in USD/CAD. So far in Q4 USD/CAD is down by -1.15% while the US Dollar is down by more than -2.27%. Much of that loss in USD/CAD has taken place over the last two weeks, helped along by a strong Canadian jobs report earlier this month that printed right around the time that USD/CAD began to dig-down to fresh lows. That strong employment report helped to keep odds high that the BoC would hold rates at their next rate decision while the FOMC is widely-expected to cut again at their rate decision later this month.
The big question here is whether that downside bias can continue through a big area of support for the next hundred pips below the current spot rate in USD/CAD?
USD/CAD Weekly Price Chart
USD/CAD Strategy Near-Term
At this point, the long side of USD/CAD can be difficult to work with given the pace of recent declines. Given the proximity to nearby support, reversals can possibly come into play in the near-term should any of the support levels below current price action show an entrance of buyers into the matter.
On the short-side of USD/CAD, traders would likely want to wait for either a) a pullback to a potential resistance level, at which point risk could be adequately managed on the initial entry or b) a break through this big confluent zone of support to signal further lows may be on the way.
USD/CAD Four-Hour Price Chart
To read more:
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.