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USD/CAD Technical Analysis: Catching The Falling Knife of CAD Futile for Now

USD/CAD Technical Analysis: Catching The Falling Knife of CAD Futile for Now

Tyler Yell, CMT, Currency Strategist


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Talking Points:

Across the board today, the US Dollar is higher at the expense of G10FX, and especially commodity FX. Three words that appear to describe the world after the Federal Reserve lifted rates is ‘monetary policy divergence.’ Monetary policy divergence is seen everywhere and the Canadian dollar is no different as diverging paths push the US/CA 2-yr yield further apart showing there’s little reason now to catch the CAD falling knife. The spread is up 5bps from the last writing or 200 pips ago on the cross and if the spread continues to widen, it’s appropriate to focus on upside still for the North American cross. A lot of this not only has to do with the Fed decision on December 16, but also the deepening glut in US Oil. USD/CAD bears or CAD bulls will need to wait for the trend higher to play out, and a reversal to form before trying to fight this mighty trend that appears set on approaching 1.4000.

Resistance on such a strong trend is about as firm as a drawn line in the side next to the water’s edge. Upside focus will be 1.3900, followed by the big figure of 1.4000. Support is a little more concrete, and until at least these levels break, it’s difficult finding a credible reason outside of a low odds gamble to fight the trend. Support at the Dec. 16low of 1.3728 would need to be the first break to say the trend is stalling at best or over at worst. The latter is less likely given the compounding factors that are pushing the cross higher. The next level of support worth watching would be 1.3675, the Weekly R2 Pivot. The first credible sign of a reversal would be on a break of the late September high of 1.3456. Until then, pullbacks should be favored long entry points as opposed to trend fighting short entries. With SSI currently at -4.329, the burden of proof toward a reversal is on the bears, not the bulls.

The burden of proof is on the bears, not the bulls.

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