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Canadian Dollar Outlook: USD/CAD Breakout Levels- Bull’s First Test

Canadian Dollar Outlook: USD/CAD Breakout Levels- Bull’s First Test

2020-09-23 18:30:00
Michael Boutros, Strategist
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Canadian Dollar Technical Price Outlook: Near-term Trade Levels

  • Canadian Dollar updated technical trade levels – Daily & Intraday Charts
  • USD/CAD breakout approaching initial resistance zones- bulls vulnerable near-term
  • Constructive while above 1.3205 – key resistance 1.3384 & 1.3450

The Canadian Dollar is on the defensive against the US Dollar for a third consecutive week with USD/CAD rallying nearly 3% off multi-month lows. While the near-term outlook remains constructive, the advance is now approaching initial zones of resistance and we’re looking for a reaction just higher for guidance. These are the updated targets and invalidation levels that matter on the USD/CAD price charts heading into the close of the month. Review my latest Strategy Webinar for an in-depth breakdown of this Loonie technical setup and more.

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Canadian Dollar Price Chart – USD/CAD Daily

Canadian Dollar Price Chart - USD/CAD Daily - Loonie Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/CAD on Tradingview

Technical Outlook: In my last Canadian Dollar Price Outlook we noted that USD/CAD was trading just above support, “with a close below 1.3151 marking resumption towards 1.3102 and the 61.8% retracement of the 2017 rally at 1.3057.” Price plummeted into the close of August trade with USD/CAD briefly registering a low at 1.3020 before leveling off.

A three-week rally off the lows takes price into confluence region just higher at channel resistance (red) / the 100% extension of the monthly rally at 1.3384- looking for a reaction there IF reached. Daily support / near-term bullish invalidation now raised to the February low at the 1.32-handle. A topside breach / close higher keeps the focus on the 61.8% Fibonacci retracement at 1.3450 and the May 2019 high-day close at 1.3515.

Canadian Dollar Price Chart – USD/CAD 120min

Canadian Dollar Price Chart - USD/CAD 120min - Loonie Trade Outlook - Technical Forecast

Notes: A closer look at Loonie price action shows USD/CAD trading within the confines of a well-defined ascending channel formation off the monthly lows with the advance now attempting to break above multi-month down slope resistance today (magenta). That said, the immediate advance is vulnerable into confluence resistance at 1.3384 with price marking momentum divergence into the weekly high today. Initial support now 1.3315/22 backed by 1.3270/83- both levels of interest for downside exhaustion IF price is indeed heading higher. A topside breach / close above the upper parallel is needed to keep the long-bias viable towards 1.3450 and 1.3486-1.3515- look for another pivot there IF reached with a break exposing confluence Fibonacci resistance at 1.3609/49.

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Bottom line: The USD/CAD breakout is now approaching near-term uptrend resistance and while the broader outlook remains constructive, the bulls may be vulnerable here. From at trading standpoint, a good region to reduce long exposure / raise protective stops – look for a reaction on a test of 1.3384 for guidance. Ultimately a pullback may offer more favorable opportunities closer to uptrend support with a topside breach of this formation needed to fuel the next leg higher in price. Weakness beyond the 1.32-handle would mark resumption of the broader downtrend towards 1.3057 once again. Review my latest Canadian Dollar Weekly Price Outlook for a closer look at the longer-term USD/CAD technical trade levels.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Canadian Dollar Trader Sentiment – USD/CAD Price Chart

Canadian Dollar Trader Sentiment - USD/CAD Price Chart - Loonie Trade Outlook - Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +2.19 (68.66% of traders are long) – bearish reading
  • Long positions are12.84% higher than yesterday and 10.44% lower from last week
  • Short positions are 5.52% lower than yesterday and 3.17% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. Traders are more net-long than yesterday but less net-long from last week. The combination of current positioning and recent changes gives us a further mixed USD/CAD trading bias from a sentiment standpoint.
USD/CAD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 10% 8% 9%
Weekly 29% 0% 21%
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Key US / Canada Data Releases

Key US / Canada Data Releases - USD/CAD Economic Calendar - Weekly Event Risk

Economic Calendar - latest economic developments and upcoming event risk.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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