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Canadian Dollar Outlook: USD/CAD at Highs – Breakdown Brewing?

Canadian Dollar Outlook: USD/CAD at Highs – Breakdown Brewing?

Rich Dvorak, Analyst

USD/CAD FORECAST POLARIZED AFTER OFFSETTING US JOBS REPORT & CANADIAN EMPLOYMENT DATA, FED & BOC RATE CUTS

  • USD/CAD is probing month-to-date highs but could struggle to continue its advance
  • Jobs data out of the US and Canada this morning both topped estimates and showed strength amid the coronavirus outbreak and interest rate cuts from both the Fed and BOC
  • The uptrend in spot USD/CAD price action this year carries serious impetus and might be driven largely by crashing crude oil prices

This morning’s nonfarm payrolls report out of the United States crushed market estimates – as did latest data on the Canadian labor market. Better-than-expected employment data from both the US and its northern neighbor largely countered one another and caused an overall muted reaction in spot USD/CAD price action. The US and Canadian jobs reports follow interest rate cuts delivered by the Federal Reserve (Fed) and Bank of Canada (BOC) earlier this week.

Read More: USD/CAD Price Outlook Clouded as Fed & BOC Cut Rates

As such, forex traders are battling over where USD/CAD heads next. With outlook for the US Dollar to Canadian Dollar mired by conflicting fundamental developments this year, like lofty FOMC rate cut bets and collapsing crude oil prices, which have largely resulted indirectly from the ongoing coronavirus outbreak, it may prove useful to turn to the charts for an assessment of USD/CAD price action.

USD/CAD PRICE CHART: DAILY TIME FRAME (DECEMBER 2018 TO MARCH 2020)

USDCAD Price Chart US Dollar Canadian Dollar Forecast

Taking a high-level view of USD/CAD since the beginning of last year reveals three overarching technical developments: a massive amount of confluence around the 1.34 handle, the notable series of lower highs stretching back to early 2016, and the astronomical rally in spot prices since January that looks to have formed a bullish ‘golden-cross’ of the 50-day and 200-day simple moving averages.

USD/CAD PRICE CHART: DAILY TIME FRAME (MAY 2019 TO MARCH 2020)

USD CAD Price Chart USDCAD Forecast US Dollar Canadian Dollar

Honing in on spot USD/CAD price action since May 2019, the 76.4% Fibonacci retracement highlights confluent resistance around the 1.3420 zone. USD/CAD sellers appear active around this big technical level, which is suggested by the long upper wicks printed on the daily candlesticks from the last three trading sessions, as well as the sharp drops recorded on February 28 and March 01.

USD/CAD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 13% -41% -8%
Weekly 7% -24% -2%
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USD/CAD bears may attempt to push spot prices lower to test its short-term trend underpinned by its 9-day exponential moving average. If this technical barrier gives way, USD/CAD might then search for confluent support at the 23.6% or 38.2% Fib levels of its year-to-date trading range. Additionally, medium-term trend support could reside near the 1.3300 handle and 34-day EMA.

USD/CAD PRICE CHART: 2-HOUR TIME FRAME (FEBRUARY 2020 TO MARCH 2020)

Chart of USDCAD Price Forecast US Dollar Canadian Dollar Technical Analysis

Yet, when zooming in a bit on a 2-hour USD/CAD chart dating back to February 21, the strong uptrend etched out by spot price action grows more apparent. This is identified by the healthy series of higher lows over the last 2 weeks.

Perhaps recent sluggishness in spot USD/CAD prices could be attributed to a brief consolidation before the major currency pair makes its next big move. The direction of oil prices over coming trading sessions may act as a bellwether for USD/CAD considering the strong correlation of the Canadian Dollar and oil.

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Nevertheless, the short-term trading range currently held by USD/CAD may provide potential scalping opportunities. The March 05 and February 28 intraday highs could serve as possible resistance targets, while the March 06 and March 04 intraday lows could provide support.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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