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Canadian Dollar Price Forecast: USD/CAD, CAD/JPY Levels Ahead of BoC

Canadian Dollar Price Forecast: USD/CAD, CAD/JPY Levels Ahead of BoC

Daniel Moss, Analyst

Canadian Dollar, USD/CAD, CAD/JPY, Technical analysis, IGCS – Talking Points:

  • The Canadian Dollar may be at risk of a counter-trend correction against its haven-associated counterparts.
  • CAD/JPY vulnerable to pullback after failing to breach key resistance.
  • USD/CAD eyeing a push to retest monthly highs.

The Canadian Dollar has thoroughly outperformed the US Dollar and Japanese Yen since the Coronavirus Crash in March of 2020 and appears poised to continue doing so over the coming months. However, short-term price action suggests the Loonie may lose ground against its haven-associated counterparts. Here are the key levels to watch for USD/CAD and CAD/JPY as the Bank of Canada rate decision comes into view.

USD/CAD Weekly Chart – Double Top Pattern Playing Out

USD/CAD weekly chart created using Tradingview

The long-term technical outlook for the USD/CAD exchange rate appears overtly bearish, as price slides to multi-year lows and continues to drift towards the neckline of the Double Top reversal pattern formed in March of last year.

With a Death Cross moving average formation taking shape, and the RSI continuing to hover below 40, the path of least resistance seems lower.

However, with price struggling to hurdle key support at the April 2018 low (1.2527), a short-term correction back towards psychological resistance at 1.2800 could be on the cards.

Ultimately, a weekly close below psychological support at 1.2600 is needed to signal the resumption of the primary downtrend and bring the Double Top neckline (1.2061) into focus.

USD/CAD Daily Chart – Bullish Falling Wedge or Downtrend Continuation?

USD/CAD daily chart created using Tradingview

Zooming into the daily timeframe hints at the possibility of a near-term reversal higher, as price tracks within a bullish Falling Wedge pattern and remains constructively perched above 1.2600.

A daily close above the trend-defining 55-EMA (1.2728) and wedge resistance could intensify buying pressure and ignite an impulsive upside move to challenge the yearly high (1.2881).

However, if wedge resistance remains intact, an extended move lower looks relatively likely, with a daily close below 1.2600 likely carving a path for the exchange rate to retest the yearly low (1.2468).

The IG Client Sentiment Report shows 66.70% of traders are net-long with the ratio of traders long to short at 2.00 to 1. The number of traders net-long is 6.35% lower than yesterday and 0.41% higher from last week, while the number of traders net-short is 3.37% higher than yesterday and 17.86% lower 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.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

CAD/JPY Weekly Chart – Breach of 200-MA Indicative of Long-Term Trend Change

CAD/JPY weekly chart created using Tradingview

CAD/JPY rates have stormed higher in recent weeks, after breaking the downtrend extending from the 2014 highs and slicing through the sentiment-defining 200-week moving average (83.19).

Although the exchange rate’s long-term outlook remains skewed to the topside, the formation of a Shooting Star reversal candle suggests that a short-term pullback could be on the cards.

Failing to gain a firm foothold above 86.00 could neutralize near-term buying pressure and open the door for sellers to drive the exchange rate back towards former resistance-turned-support at the 2020 high (84.74).

CAD/JPY Daily Chart – Ascending Triangle Breach Hints at Further Gains

CAD/JPY daily chart created using Tradingview

Bearish RSI divergence, in tandem with a Shooting Star candle, on the daily timeframe also hints at the possibility of near-term losses for CAD/JPY.

Failing to gain a firm foothold above the 100% Fibonacci (86.00) on a daily close basis would likely pave the way for sellers to drive the exchange rate back towards the February high (85.10). Breaching that brings the 84.50 mark into focus.

Alternatively, a convincing break above 86.00 could carve a path for price to probe the November 2018 high (86.99).

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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