USD/CAD Price Outlook:
- USD/CAD staged a meteoric rise earlier this month before stalling out around 1.4669
- Recent price action has seen the pair fluctuate around the 1.40 level
- After stalling its decline, USD/CAD may aim higher on CAD weakness
Canadian Dollar Forecast: USD/CAD May Melt Higher After Pull Back
USD/CAD soared earlier this month as extreme risk aversion drove USD demand and a breakdown in crude oil prices worked to undermine the Canadian Dollar’s standing. Together, the forces were enough to spark a remarkable rally that saw the pair reach its highest point since January 2016. At the time, the surged appeared overbought and vulnerable to a brief pull back as I highlighted at the time.
USD/CAD Price Chart: Daily Time Frame (January 2019 – March 2020)
To be sure, the recent drawdown in volatility may see USD strength wane as risk appetite reemerges, but the ongoing crude oil rout may act as a persistent threat to the Canadian Dollar. Coupled with the possibility of resurgent volatility stoking USD demand, USD/CAD seems tilted toward further strength that may see the pair continue its journey higher in the weeks ahead. Now that the pair has had the opportunity to consolidate some of its recent gains, opportunities for long exposure have become somewhat more attractive.
To that end, early areas of support may reside around 1.40 and the recent swing low at 1.3924. A break beneath 1.3924 would considerably undermine the prospect of further gains in my opinion. With that said, a continuation of USD/CAD strength may ultimately have to negotiate the recent spike on March 16 at 1.4669 before it can target subsequent resistance at the 2016 high narrowly above.
| Change in | Longs | Shorts | OI |
| Daily | 25% | -19% | -4% |
| Weekly | 74% | -29% | -4% |
Together, the levels will look to create a significant barrier to further gains, but resistance in the interim appears relatively sparse. Critically, however, the market is currently experiencing a drawdown in volatility that could make a rally toward the barriers above take weeks. Therefore, if volatility continues to recede, a gradual melt higher becomes more likely than a parabolic surge to establish new highs. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
