CANADIAN DOLLAR FORECAST: USD/CAD PRICE DROPS AS LOONIE RECOVERS
- USD/CAD rallied 13% off its year-to-date low as the US Dollar climbed against its Canadian Dollar peer amid the crude oil price crash
- Spot USD/CAD price action has since pulled back over 300-pips from its recent swing high as the Loonie recovers recent downside
- The US Dollar to Canadian Dollar rate has potential to resume its ascent if coronavirus concerns and liquidity strains resurface
The Canadian Dollar, or Loonie, is the best performing major currency pair so far during Wednesday’s trading session. Spot USD/CAD is down by about 0.8% today as the US Dollar slides further from a four-year high against its Canadian Dollar counterpart.
USD/CAD PRICE CHART: WEEKLY TIME FRAME (SEPTEMBER 2015 TO MARCH 2020)
Despite sliding over 300-pips from last week’s blow-off top, USD/CAD remains higher by about 10% since January, with recent upside driven primarily by the crude oil price war and demand for safe-haven currencies like the US Dollar amid the coronavirus pandemic.
| Change in | Longs | Shorts | OI |
| Daily | -3% | 2% | -2% |
| Weekly | 57% | -38% | 2% |
The USD/CAD rally ran out of steam after probing technical resistance near the 1.4675 price, which is underpinned by the January 2016 swing high. Perhaps a healthy USD unwind is underway as FX volatility ebbs with massive amounts of liquidity being provided by the Federal Reserve.
USD/CAD PRICE CHART: DAILY TIME FRAME (DECEMBER 2019 TO MARCH 2020)
A daily USD/CAD chart reveals the series of lower highs notched over the last few trading sessions and could suggest that the trend has started to reverse back to the downside. Even as the USD/CAD breakout stalls, however, the latest Canadian Dollar recovery could prove short-lived. The Loonie has potential to resume its slide if oil prices remain under pressure and coronavirus fallout continues to weigh on market sentiment.
That said, USD/CAD might find technical support provided by the 9-day exponential moving average. Technical confluence around the 23.6% Fibonacci retracement of the currency pair’s year-to-date trading range could also offer buoyancy to spot USD/CAD price action. Also, a retest of the March 20 intraday swing low near the 1.42 handle may be targeted by USD/CAD bears.
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
