Canadian Dollar Price Outlook: USD/CAD Snaps Back, Will Bears React?
Canadian Dollar, CAD, USD/CAD Price Analysis:
- USD/CAD had put in a couple of weeks of support around a key area on the chart, plotted around the psychological price of 1.4000.
- Earlier this morning the pair broke below that level, soon finding support around the 1.3950 area, leading into a bounce back up to that 1.4000 level.
- The US Dollar will likely remain in the spotlight as tomorrow’s economic calendar brings the April rate decision from the Federal Reserve.
- If you’re looking to learn more about support and resistance, the newly revamped DailyFX Education offering has a plethora of resources available.
USD/CAD Falls Back-Below the 1.4000 Marker
Bulls made their mark in USD/CAD in the month of March as the pair surged by more than 1,300 pips in less than three weeks. A potent combination of USD-strength and CAD-weakness, helped along by falling oil prices that helped the pair set a fresh four-year-high. But, as looked at a couple of times since then, buyers pulled up just ahead of a re-test at a big level of 1.4690, which is the current 17-year high in USD/CAD.
What seemingly started out as a pullback started to take on tone of a reversal, with the pair giving back more than 50% of that major move that showed up in March. But, as looked at last week, buyers were able to come back into the matter, again with the apparent help of falling oil prices, and USD/CAD pushed back above the 1.4000 handle, soon building into a range with that 1.4000 level helping to set a couple of different instances of support.
That observation changed this morning, however, as a spate of USD-selling helped USD/CAD to push below the 1.4000 level. Sellers stalled around 1.3950, at which point a bounce developed for resistance to play-in off of that prior support level, showing around the psychological price of 1.4000.
USD/CAD Four-Hour Price Chart
Chart prepared by James Stanley; USDCAD on Tradingview
At this point, price action is testing a big zone of prior support on the chart: Not only did this area hold multiple inflections over the past couple of weeks, but there are three different support/resistance mechanisms within a 20-pip range. The price of 1.3992 is the 50% marker of that March major move; and at 1.4000 psychological level sits just beneath the 1.4012 Fibonacci level which is the 38.2% retracement of the 2020 major move. Given a recent lower-low, combined with a test of resistance around prior support to go along with a potential lower-high, short side scenarios may be an attractive way of moving forward. The big question is whether the technical setup is too clean for comfort, and whether a bear trap may be brewing here on the hourly chart below.
Keep in mind – this morning’s move in the pair appears to be USD-driven; and tomorrow’s economic calendar brings the Federal Reserve at 2pm ET. This theme can shake, rattle and/or roll as the Fed talks up potential responses to the fear around the economic impact of coronavirus. So for USD/CAD as many other USD-pairs, matters can change very quickly as a new, critically important driver comes into the equation tomorrow afternoon.
USD/CAD Hourly Price Chart
--- 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.