USD/CAD Price Outlook:
- USD/CAD fell to a 7 month low at the start of September, only to see an immediate bounce higher
- A nearly simultaneous breakdown in crude oil prices helped to undermine the Canadian Dollar further
- Still, concerns remain for USD/CAD, so is recent price action a dead cat bounce? Or an earnest break higher?
Canadian Dollar Forecast: Can USD/CAD Mount a Bullish Continuation?
USD/CAD fell to its lowest level in 7 months to start September as the pair continued to give back some of the gains it enjoyed in the aftermath of the initial covid crash. More recently, however, USD/CAD staged a bullish break higher, surging above a descending trendline that helped to guide price lower since mid-July. Now, crude oil price declines have further eroded the Canadian Dollar, allowing USD/CAD to progress slightly higher still.
USD/CAD Price Chart: 4 - Hour Time Frame (June 2020 - September 2020)
Suffice it to say, recent price action might suggest USD/CAD bulls are intent on staging a continuation higher. With the prospect of further crude weakness and US Dollar demand on the back of broader risk aversion, it would seem the fundamental landscape beneath USD/CAD has shifted slightly. Further still, the break above the descending trendline from June has opened the door for a continuation higher from a technical standpoint.
Consequently, the medium-term outlook for USD/CAD may be entering a transitionary period. That being said, there are still arguments to be made for renewed bearishness, namely the state of risk appetite in the market.
Recent jitters in popular tech stocks have sent US equities retreating, but the uncertainty in one corner of the market has failed to translate to a broader decline in risk assets – apart from crude oil which has likely been reflected in USD/CAD already. Thus, it is difficult to confidently assert a change in trend without further confirmation.
| Change in | Longs | Shorts | OI |
| Daily | 22% | -15% | 1% |
| Weekly | 50% | -29% | -1% |
That being said, IG Client Sentiment data reveals an overwhelming number of retail traders are net-long USD/CAD, a sign the pair may continue to fall since we typically take a contrarian view to crowd sentiment. Thus, patience may be warranted while the fundamental landscapes continues to evolve. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
--Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
