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Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

2018-05-03 15:49:00
Tyler Yell, CMT, Currency Strategist
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Canadian Dollar Rate Forecast Key Takeaways:

  • USD/CAD Price Forecast: coming into 61.8% retracement of key March-April range. A break above 1.2900 would tell chart watchers that US Dollar strength will likely resume even against the somewhat evenly matched Canadian Dollar
  • Relatively hawkish announcements from both BoC Governor & FOMC keep market’s attention. BoC Govy Poloz warns the market that rate hikes will keep coming despite 'Caution' word used earlier while Federal Reserve is likely set to allow inflation to meet and beat 2% target.
  • IG UK Client Sentiment Highlight: Retail selling activity jumps, bullish bias emerges. Sentiment is utilized as a contrarian technical trading tool, which derives insight from our Traits of Successful Traders research

Unlock our Q2 forecast to learn what will drive trends for the US Dollar

The Canadian Dollar has been going toe-to-toe with the G10 leading US dollar (at least as of the April 18), but now both currencies are facing headwinds. While Governor Poloz did note that rate hikes were likely warranted, there has been a drop in the price of WTI crude oil that has added pressure to the Canadian Dollar.

For the US Dollar, no rate hike was delivered by FOMC as expected. However, the word that stole the show was the addition of symmetric (that’s why traders are rarely invited to cocktail parties) regarding inflation. The takeaway is that FOMC would allow for an inflation overshoot, which is likely what they’ll get when looking at the Bloomberg Commodity Index.

However, when you look at the Strong-Weak Report Scorecard, you can see on the distribution tails that CAD & USD strength remain a theme despite the recent set-back. Specifically, you can see short-term RSI(3) on GBP/CAD and EUR/CAD show aggressive CAD strength as does CADCHF.

May 3 Strong/Weak Scorecard Shows CAD Strength

Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

Data source: Bloomberg

Do you follow WTI crude oil? If so, do check out our popular Oil Forecast

USD/CAD Support & Resistance: May 3

Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

Data source: Bloomberg

Looking at the technical picture of USD/CAD is tricky as they are two of the strongest currencies in the G10. However, given the discount of the current economic picture applied to the currency, it appears CAD may have more to gain than US Dollar. However, based on positioning, it still seems premature to call a top on US DOLLAR.

A break above 1.2900 (April 27 high) would open up a move toward the April 3 high of 1.2924.

Canadian Dollar Rate: Ichimoku Scorecard

Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

Source: Ichimoku Intraday Dashboard

Per my recently created Ichimoku scorecard with data imported from Bloomberg, you can see a rather mixed reading with momentum and ‘Stature’ bullish with the other three readings mixed. A mixed game tends to be a frustrating trade that should be held off until a key break develops and one of the two currencies dominate, as oppose to share the strong-weak board.

Please add a description for the image.

Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

Looking above, you can see the pushing up against resistance on USD/CAD to the 61.8% retracement near 1.2900. Shorter-term focus remains on trend and momentum per Ichimoku cloud as the price bumps up against Fibonacci 61.8%retracement resistance.

Price appears wedged between clean support at C$1.28 and resistance at C$1.29 per USD. A break below the prior low on the short-term chart at 1.2805 could open up a move toward the April 20 high of 1.2760 before retracing more of the post-BoC move.

Not familiar with Fibonacci analysis, check out this insightful article

Valuable Insight from IG Client Positioning for USD/CAD: Retail selling activity jumps, biased higher

Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar

Data source: IG Client Positioning

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.

TO READ MORE:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

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