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Canadian Dollar Forecast: USD/CAD Recovers, Will it Reverse Lower Soon?

Canadian Dollar Forecast: USD/CAD Recovers, Will it Reverse Lower Soon?

Peter Hanks, Analyst

USD/CAD Price Forecast:

  • USD/CAD moved off recent lows, pushing beyond 1.2800 for the first time in two weeks
  • Progress above the level was short lived and USD/CAD has since pulled back and nears support
  • While recent gains might encourage USD bulls, the technical outlook reveals the path of least resistance remains lower
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Canadian Dollar Forecast: USD/CAD Recovers, Will it Reverse Lower Soon?

USD/CAD started the week off strong as it pushed above 1.2800 for the first time since late December. The broader Dollar Basket (DXY) also showed signs of life as it pulled away from recent lows and retook the 90 mark. Bullish progress has already encountered resistance, however, and further gains may become more difficult to establish as a result.

Canadian Dollar (USD/CAD) Price Chart: Daily Time Frame (July 2018 – January 2021)

usdcad daily price chart

Little has changed in the fundamental landscape and what has may actually work to erode USD/CAD further. First, President elect Joe Biden announced further stimulus in the form of multiple trillions. Such a move would work to undermine the Greenback and threaten any attempted recovery rallies.

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On the other hand, crude oil prices have continued to rise with the commodity reaching an 11-month high as of Tuesday’s session. As an important factor of the Canadian economy and Canadian Dollar, continued strength in crude oil may work to buoy the Loonie. While modest crude strength is unlikely to singlehandedly drive USD/CAD lower once more, it may work in conjunction with subsequent stimulus, both of which may see a renewed decline in the pair.

USD/CAD Price Chart: 4 – Hour Time Frame (July 2020 – January 2021)

usdcad price chart

Early areas of resistance in the event of a renewed recovery attempt likely reside just south of 1.2800 followed by the descending trendline drawn off the September and November lows. Tertiary resistance might rest higher still, as the psychologically-significant 1.3000 mark looms overhead. Short of breaking through each of these areas, USD/CAD rallies may be considered short-term recoveries and consolidation amidst a broader downturn that has shown few signs of exhaustion.

USD/CAD BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 7% 28% 15%
Weekly 0% 56% 17%
What does it mean for price action?
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Further still, IG client sentiment data reveals retail clients remain net-long USD/CAD. Since we typically take a contrarian view to crowd positioning, the data may suggest further declines on the horizon for USD/CAD. 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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