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Canadian Dollar Price Outlook: USD/CAD Rally to Resistance Before BoC

Canadian Dollar Price Outlook: USD/CAD Rally to Resistance Before BoC

2019-05-28 12:30:00
James Stanley, Currency Strategist
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Canadian Dollar, USDCAD Outlook Talking Points:

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

USDCAD Rally to Range Resistance Ahead of Bank of Canada

The range continues in USDCAD, and this comes despite last week’s threatening test of support on Wednesday, at which point prices in the pair temporarily tested below the zone that’s helped to hold the lows since late-April. At that point, buyers returned, helped by a bullish trend-line that connects support in the pair since late-February, and staged another topside push back up to resistance in USDCAD. Tomorrow brings a Bank of Canada rate decision with the wide-expectation of no moves, begging the question as to whether the BoC tips their hand toward future rate cuts after getting more dovish at the April rate decision.

USDCAD Four-Hour Price Chart

usdcad usd/cad four hour price chart

Chart prepared by James Stanley

Last week’s support test in USD/CAD was short-lived. Prices in the pair had tilted-lower leading into Wednesday trade, at which point a disappointing data point was released with Canadian retail sales figures. That print hit at 8:30 AM ET last Wednesday, and that syncs well with the short-term reversal of price action in the pair, when prices quickly pivoted from below support and all the way back to resistance over the next 24 hours. That resistance hold held into the open of the fresh week, and as US markets come back online after the Monday holiday, USD/CAD price action is pushing right back towards range resistance.

USDCAD 30-Minute Chart

usdcad usd/cad 30 minute price chart

Chart prepared by James Stanley

USDCAD Breakout Potential: Is BoC the Catalyst?

At this point, USDCAD has spent the bulk of the past five months with a bullish bias, including the past month of range-bound behavior; aided by the trend-line looked at above. More recently, resistance at the 1.3500 handle has become somewhat of a hindrance, as that bullish advance has simply been unable to incline above this very key level on the chart.

Given last month’s dovish Bank of Canada rate decision, the wide expectation appears to be looking for a more-dovish BoC to elicit a move of further weakness in the currency, which could allow for topside breakouts in the USDCAD pair.

Last month’s dovish pivot at the BoC, in which the bank hinted away from the prospect of rate hikes this year, prices in USD/CAD temporarily tested above the 1.3500 handle. Swing traders quickly pulled prices back into the range, which remains in-play today. But, should the BoC further that dovish language, the potential opens for a topside break and a resumption of the longer-term trend in the pair. Breakout targets can be attractive around the prior January swing-low in the 1.3570 region, followed by targets cast towards the two-year-high of 1.3665.

USDCAD Daily Price Chart

usdcad usd/cad daily price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

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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.

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