Canadian Dollar Forecast: Will USD/CAD Crash Through Support?

USD/CAD PRICE OUTLOOK: CANADIAN DOLLAR ADVANCE THWARTED AT KEY TECHNICAL LEVEL, BUT WILL IT SPARK A REVERSAL?

• USD/CAD dropped by 250-pips to start the trading week
• Canadian Dollar could continue climbing if deflation is avoided
• US Dollar dominance might reverberate around a key technical level

USD/CAD price action edged lower by about 1.7% over the last thee trading sessions driven by a wind of Canadian Dollar strength. The Canadian Dollar seems to have started the week on the right foot, but the recent rally against its USD peer could quickly unwind. Spot USD/CAD faces a critical technical support level that might prove too big an obstacle for Canadian Dollar bulls to overcome.

USD/CAD PRICE CHART: DAILY TIME FRAME (19 FEBRUARY TO 19 MAY 2020)

USD/CAD printed a fresh monthly high after spot prices fell to intraday lows near the 1.3880 mark. Canadian Dollar strength has since subsided as the end of the trading session nears. USD/CAD price action currently hovers slightly below the 1.3950 level following the mid-day reversal that appears to have resulted in a bullish hammer candle.

USD/CAD has failed to breach this technical support zone around 1.3865 since March when crude oil first crashed and the Canadian Dollar crumbled. This level looks underpinned by a double bottom pattern formed by the April 13 and April 30 swing lows as well.

Correspondingly, spot USD/CAD prices could pivot back higher as Canadian Dollar selling pressure accelerates following the latest rejection at this technical inflection point. Also noteworthy, the short-term direction of spot USD/CAD price action could get strong-armed by upcoming event risk scheduled on the economic calendar – like the release of Canada inflation data or FOMC minutes.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight