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Canadian Dollar Forecast – Trade or Fade: USD/CAD, CAD/JPY, EUR/CAD

Canadian Dollar Forecast – Trade or Fade: USD/CAD, CAD/JPY, EUR/CAD

James Stanley, Senior Strategist

Canadian Dollar Technical Forecast

Canadian Dollar Slammed After Bank of Canada Rate Decision

The Canadian Dollar got slammed this week, brought upon by the Bank of Canada rate decision in which BoC Governor Stephen Poloz sounded far less optimistic than he did previously. This rate decision took place on Wednesday, just an hour-and-a-half after the release of Canadian inflation numbers that didn’t look all that bad. Canadian CPI for the month of December came in at 2.2%, which was just inside of the expectation for 2.3% but right in-line with the prior-month print at 2.2. This brought little change in USD/CAD as price action remained very near the 1.3025 area that had built-in as support over the previous two weeks.

What did bring change to CAD price action was the Bank of Canada rate decision, which appeared to catch market participants by surprise. While expectations had previously pointed to a possible rate cut in October, that was quickly repriced to earlier in the year as the BoC cut GDP growth forecasts for 2020 and 2021. In short order, USD/CAD shot-higher, breaking through a zone of resistance around the 1.3100 handle to find sellers around 1.3170. Resistance has since settled in another zone of interest, running from 1.3132-1.3150; keeping the door open for possible reversal plays in the pair but, given the change-in-momentum, traders may want to look elsewhere to work with CAD themes.

USD/CAD Technical Forecast: Neutral

USD/CAD Weekly Price Chart

USDCAD Weekly Price Chart

Chart prepared by James Stanley

CAD/JPY: Matching Weakness with Strength

For traders that do want to look for a continuation of Canadian Dollar weakness, CAD/JPY could present a compelling case. While the Canadian Dollar was hit with a bout of weakness after this week’s BoC rate decision, the Japanese Yen showed strength on the back if risk-aversion themes. This could offer the potential to mesh up a weak currency with one that’s recently shown strength and given chart placement and the fact that a trendline that’s held the lows since last August has started to be tested, that door for bearish continuation may soon open wider.

Technical Forecast for CAD/JPY: Bearish

CAD/JPY Daily Price Chart

CADJPY Daily Price Chart

Chart prepared by James Stanley

EUR/CAD: Compelling Case for CAD-Strength

For those that want to look to fade this week’s CAD weakness, another recently weak currency may provide scope. EUR/CAD sits just above two-month-lows, which themselves sit just above two-year-lows. The next 100 pips below current price action could be difficult ground to cover but, when looking at the increasing frequency of support tests in this vicinity combined with a series of lower-highs, breakdown potential presents itself and this could make for a compelling option for those looking to reverse this week’s CAD-weakness.

EUR/CAD Technical Forecast: Bearish

EUR/CAD Daily Price Chart

EURCAD Daily Price Chart

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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