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Canadian Dollar Forecast: USD/CAD Tests Support, CAD/JPY Extends Rally

Canadian Dollar Forecast: USD/CAD Tests Support, CAD/JPY Extends Rally

Peter Hanks, Strategist

USD/CAD & CAD/JPY Price Outlook:

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Canadian Dollar Forecast: USD/CAD Tests Support, CAD/JPY Extends Rally

The Canadian Dollar has begun reversing some of its September losses as risk appetite returns to the market. In the case of USD/CAD, recent USD weakness has seen the pair fall to support around the 1.3200 mark – an area that has consistently provided some degree of influence whether support or resistance. This time around, the area could be the last level of notable buoyancy until secondary support around 1.3139.

USD/CAD Price Chart: 4 - Hour Time Frame (July 2020 - October 2020)

USDCAD price chart

Therefore, a break beneath 1.3200 could open the door for an extension lower which would see USD/CAD move to its lowest level in over three weeks. With that in mind, a bearish break could suggest September’s rally was merely a period of consolidation before the longer-term descent continues. IG client sentiment data reveals retail traders are overwhelmingly bullish USD/CAD, a sign the pair may continue to bleed lower since we typically take a contrarian view to crowd sentiment.

CAD/JPY Outlook

While USD/CAD is in the midst of an extended decline, CAD/JPY has launched off support and added to gains it has established since late September. As a result, the pair looks vulnerable to shorter-term pullbacks as it consolidates during its longer-term climb. That being said, the 200-period moving average on the 4-hour chart – conveniently around the 80.00 mark – might be an area of potential support in the event of a short-term pullback.

CAD/JPY Price Chart: 4 - Hour Time Frame (July 2020 - October 2020)

CAD/JPY price chart

Similar pullbacks have already occurred with each contributing to the series of higher lows and higher highs, typically an indication of an upward trend. Thus, it seems likely CAD/JPY will continue higher in the weeks ahead, but could experience shorter-term pullbacks that might create potential entry points for long exposure. 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

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

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