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USD/CAD Forecast: Risk Aversion Sparks US Dollar Revival

USD/CAD Forecast: Risk Aversion Sparks US Dollar Revival

Peter Hanks, Strategist

Canadian Dollar (USD/CAD) Price Outlook:

  • Waning risk appetite and technical support have allowed USD/CAD to climb higher
  • Still, the road to a broader USD/CAD recovery looks tedious with major technical levels in the way
  • Learn the different trading styles to see what type of price action best suits you

USD/CAD Forecast: Risk Aversion Sparks US Dollar Revival

Bucking the trend that has persisted since the coronavirus crash, USD/CAD moved to test an overhead Fibonacci level last week as waning risk appetite gave way to USD strength. The shift in sentiment followed the June FOMC meeting and was rather swift and unexpected as Fed Chairman Jerome Powell struck an accommodative tone. Either way, risk assets like the Dow Jones and S&P 500 faltered, while growth-linked currencies like the Australian Dollar and Canadian Dollar weakened simultaneously.

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

USD/CAD price chart

The change in sentiment coupled with technical support around the 1.3381 level worked to spark the brief rally higher, which has since run into resistance at the Fibonacci level at 1.3687. While market participants assess the longer-term implications of the Fed’s commentary, USD/CAD may be susceptible to further price swings. Despite the possibility of shorter-term volatility, the longer-term outlook for USD/CAD should continue to favor bears in my opinion.

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To that end, subsequent attempts higher – should they occur – may allow for a more attractive risk-reward profile as traders can look to support beneath as an area of potential interest, while setting zones above resistance as areas of invalidation. What is most critical, perhaps, is that the pair remains beneath the descending trendline marked by the various swing highs posted since late March. A move above this level would materially alter my technical bias and would seriously undermine the bearish setup.

USD/CAD Bearish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 11% -27% -7%
Weekly 12% -15% 0%
What does it mean for price action?
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In the meantime, I suspect bearish opportunities will arise as IG Client Sentiment Data reveals retail traders remain net-long USD/CAD – suggestive of a bearish trading bias. For further updates and analysis, follow @PeterHanksFX on Twitter for updates.

--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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