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Canadian Dollar Outlook: USD/CAD Plummets into Support– Loonie Levels

Canadian Dollar Outlook: USD/CAD Plummets into Support– Loonie Levels

Michael Boutros, Strategist

The Canadian Dollar rallied more than 3% against the US Dollar since the September extremes with USD/CAD plummeting into initial downtrend support targets into the open of the month / year. These are the updated targets and invalidation levels that matter on the USD/CAD price charts heading the start of January trade.

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Canadian Dollar Price Chart – USD/CAD Daily

Canadian Dollar Price Chart - USD/CAD Daily - Loonie Trade Outlook - USDCAD Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/CAD on Tradingview

Technical Outlook: In my latest Canadian Dollar Price Outlook we highlighted a well-defined range in USD/CAD just above the November lows while noting a, “break below 1.3086 needed to fuel the next lower in price.” A close just below this threshold on Friday saw the decline accelerate into end of the month / year with price now responding to confluence downtrend support at 1.2971 – a region defined by the 100% extension of the 2019 decline and the 78.6% retracement of the October 2018 advance. Note that the 25% parallel of the broader descending pitchfork formation also converges on this threshold into the start of the month.

Canadian Dollar Price Chart – USD/CAD 240min

Canadian Dollar Price Chart - USD/CAD 240min - Loonie Trade Outlook - USDCAD Technical Forecast

Notes: A closer look at Loonie price action shows USD/CAD trading within the confines of an embedded near-term descending channel formation extending off the December highs with the lower parallel further highlighting support at the 1.2971 Fibonacci confluence. Initial resistance now 1.3050 backed by the October low-day close at 1.3086 – both levels of interest for possible topside exhaustion IF reached. Bearish invalidation now lowered to 1.3134. A break / close lower from here exposes subsequent support objectives at 1.2916, 1.2884 and the 50% retracement at 1.2861 – look for a larger reaction there.

Bottom line: The USD/CAD sell-off is testing the first major support target and while the broader outlook remains weighted to the downside, the immediate decline may be vulnerable while above the 1.2971 confluence zone heading into the closed of the week. From a trading standpoint, look for exhaustion ahead of / recoveries to be capped by the 1.31-handle IF price is indeed heading lower with a close below today’s lows needed to keep the immediate short-bias viable. Review my latest Canadian Dollar Weekly Price Outlook for a closer look at the longer-term USD/CAD technical trading levels.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Canadian Dollar Trader Sentiment – USD/CAD Price Chart

Canadian Dollar Trader Sentiment - USD/CAD Price Chart - Loonie Trade Outlook - Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +2.22 (68.92% of traders are long) – bearish reading
  • Long positions are9.86% higher than yesterday and 39.65% higher from last week
  • Short positions are24.14% higher than yesterday and 24.74% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall (Canadian Dollar strength). Yet traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed USD/CAD trading bias from a sentiment standpoint.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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