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Canadian Dollar Price Outlook: Loonie in Focus, USD/CAD Tests 1.4500

Canadian Dollar Price Outlook: Loonie in Focus, USD/CAD Tests 1.4500

2020-03-24 19:50:00
James Stanley, Strategist
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Canadian Dollar, USD/CAD, Loonie Talking Points

  • The USD/CAD breakout has finally calmed after buyers stepped-back from a test of the 17-year-high.
  • The US Dollar has gained more than 8% in the past few weeks; USD/CAD has been up by as much as 9.2%.
  • As USD/CAD tests long-term resistance, short-term strategies may find bullish potential as the 1.4500 level looms large.

USD/CAD Finally Finds Some Resistance – but Can it Hold?

The rampage in the US Dollar has finally found some element of pullback after an extreme two-week outlay that saw the Greenback surge by more than 8%. In USD/CAD, that USD-strength was meshed up with CAD weakness, exacerbating the bullish move in the pair as USD/CAD ran-up by more than 9.2% over the same period of time.

CAD-weakness has been showing for most of 2020 trade, so far. USD/CAD came into the year after pushing below the 1.3000 level to finish off 2019 trade; but what started as a pullback in the bearish theme soon took on the tone of a full-on reversal; and that strength in USD/CAD remained a fairly persistent driver for much of the time since. The open a couple of weeks ago saw USD/CAD gap above the psychological level at 1.3500; and buyers continued to push without that gap completely filling.

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The breakout has since continued up to a near-test of the 17-year-high at 1.4690. Buyers have so far shied away from a re-test at this level; but given persistence from bulls combined with shorter-term chart setups, a showdown may soon be in the cards. Current resistance is showing around a key spot on the chart taken from the 1.4500 psychological level, which is confluent with the 76.4% retracement of the 2002-2007 major move.

USD/CAD Monthly Price Chart

USDCAD USD CAD US to Canadian Dollar

Chart prepared by James Stanley; USDCAD on Tradingview

The reason for current resistance appears to be fairly clear: A stretched move pulled up just shy of a significant swing-high, and the move was fairly overbought before prices began to turn. That 17-year-high, combined with the 1.4500 psychological level, have since come into play to help hold buyers at bay.

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From the Daily chart, the importance around the 1.4500 level becomes fairly clear as we’ve now seen five consecutive days of seller reaction here.

USD/CAD Daily Price Chart

USDCAD US to Canadian Dollar Daily Chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/CAD – Bull Pennant Potential

While the Daily chart above may open the door for swing or reversal strategies focusing on a pullback; going even shorter-term brings back the prospect of bullish potential, as the five-day-hold of that resistance has brought in a series of lower-highs that’s coupled with an observation of higher-lows. This produces a short-term symmetrical wedge formation that, when taken in consideration of the prior bullish move, creates a bull pennant formation. Such a backdrop will often be approached with the aim of bullish continuation.

USD/CAD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 75% 31% 46%
Weekly 101% 3% 29%
Current Retail Sentiment in USD/CAD
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USD/CAD Two-Hour Price Chart

USDCAD USD to CAD Two Hour Chart

Chart prepared by James Stanley; USDCAD on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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