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Canadian Dollar Forecast: USD/CAD Attacks Support Ahead of FOMC

Canadian Dollar Forecast: USD/CAD Attacks Support Ahead of FOMC

Peter Hanks, Strategist

Canadian Dollar (USD/CAD) Price Outlook:

  • USD/CAD has retraced much of its coronavirus rally as USD weakness continues ahead of the looming rate decision
  • Now the pair teeters on a technical level that, if broken, might allow for another leg lower
  • Learn the different trading styles to see what type of price action best suits you

Canadian Dollar Forecast: USD/CAD Attacks Support Ahead of FOMC

US Dollar weakness continued to start the week, a theme that has become fairly common since the Dollar peaked in mid-March and volatility began its return to more normal levels. More recently, however, USD weakness has been more consistent and the US Dollar Basket (DXY) has suffered days of consecutive losses since late May as a result. In turn, USD/CAD fell significantly as the Canadian Dollar claws back lost ground to return to levels that were common prior to the outbreak.

USD/CAD Price Chart: Daily Time Frame (January 2019 – June 2020)

USD/CAD daily price chart

Just last week we highlighted an area of potential support around 1.3368 which seems to have provide a modicum of influence, but not enough to halt the broader decline. That being said, price activity may slow somewhat prior to Wednesday’s FOMC rate decision as traders shy away from exposure in the lead up to significant event risk. Either way, 1.3368 should continue to offer some influence in shorter time frames, regardless of direction.

Trading the Gap: What are Gaps & How to Trade Them?

Still, the recent plunge lower and subsequent break beneath support paved the way for price to quickly fill the gap from 1.3517 to 1.3456 and attack 1.3368, which has opened the door to further losses and subsequent support is relatively sparse. Weeks of losses have seen USD/CAD render prior Fibonacci levels obsolete and the pair threatens to do so again with 1.3368. If a break below is followed through with conviction, subsequent support of note may not arrive until 1.3065.

To be sure, much of the pair’s fate lies with the upcoming Fed rate decision, but the broader trend at this time appears to be lower and a scarcity of technical support may translate to further vulnerability. Furthermore, IG Client Sentiment data reveals retail clients remain net-long the pair, even as it continues to decline.

With our typical contrarian bias regarding client sentiment, we can surmise that USD/CAD is exhibiting signs of weakness in this regard as well, just as it was last week. As price action develops and traders await further clarification from the Federal Open Market Committee meeting, follow @PeterHanksFX on Twitter for updates.

USD/CAD Price Chart: 4 – Hour Time Frame (January 2020 – June 2020)

USDCAD price chart

--Written by Peter Hanks, Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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

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