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Canadian Dollar Outlook: USD/CAD Surge Hits Obstacles, Where to Next?

Canadian Dollar Outlook: USD/CAD Surge Hits Obstacles, Where to Next?

Daniel Dubrovsky, Strategist

Canadian Dollar, USD/CAD – Technical Analysis

  • Canadian Dollar index hinting that losses may be looming
  • USD/CAD struggling to hold push above the 100-day SMA
  • 4-hour chart analysis shows what obstacles could emerge

Majors-Based Canadian Dollar Index

The Canadian Dollar may be looking at near-term weakness against some of its developed counterparts. Taking a look at my majors-based CAD index below, which averages the Loonie against the US Dollar, Japanese Yen, British Pound and Euro, prices recently turned lower off the ceiling of an Ascending Triangle chart pattern.

Now, the 20-week Simple Moving Average seems to be coming into play as key support. A breakout under the line would expose the rising floor of the triangle, opening the door to near-term losses. Then, the trendline could come into play as key support and pivot the Canadian Dollar higher. The direction of the breakout after the triangle could hint at the next prevailing trend to come.

CAD Index - Weekly Chart

Canadian Dollar Outlook: USD/CAD Surge Hits Obstacles, Where to Next?

Chart Created in TradingView

USD/CAD Technical Outlook

In this week’s US Dollar technical forecast, I noted that USD/CAD could be readying to overturn the dominant downtrend since last year. But, this is where the 100-day Simple Moving Average is coming into play. While the pair broke above it last week, confirmation had not yet been achieved. On Monday, the pair turned back lower, undermining the initial push above the SMA.

This is leaving the pair around the 1.2365 – 1.2401 inflection zone once again. Immediately below, the 20-day SMA could cross above the 50-day equivalent. That would form a bullish crossover, hinting at further upside progress. A confirmatory push above the 100-day SMA could open the door to aiming for highs from April. Otherwise, a turn lower may place the focus on the 2018 low at 1.2250.

USD/CAD - Daily Chart

Canadian Dollar Outlook: USD/CAD Surge Hits Obstacles, Where to Next?

Chart Created in TradingView

USD/CAD Near-Term Outlook

Zooming in on the 4-hour chart can help reveal the kinds of obstacles USD/CAD could face if it tries to extend this month’s bottom. It is possible that a bounce off the 20-period SMA pushes the pair back to the key 1.24871 – 1.24640 resistance zone. There, a bearish Double Top chart pattern could emerge if prices aim back lower after testing the highs.

Keep a close eye on RSI, where negative divergence may also emerge. That is a sign of fading upside momentum which can at times precede a turn lower. Should prices fall under the 20-period SMA on the 4-hour chart timeframe, that would expose the 50- equivalent. It could come into play as key support, opening the door to reinstating the focus back higher. If not, all eyes would be back on early June lows.

4-Hour Chart

Canadian Dollar Outlook: USD/CAD Surge Hits Obstacles, Where to Next?

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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