Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.



Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events


Economic Calendar

Economic Calendar Events

Free Trading Guides
Please try again
More View More
Canadian Dollar Forecast: Turning Point Nearing? Setups in CAD/JPY, USD/CAD

Canadian Dollar Forecast: Turning Point Nearing? Setups in CAD/JPY, USD/CAD

Christopher Vecchio, CFA,
What's on this page

Canadian Dollar Outlook:

Top Trading Opportunities in Q2
Top Trading Opportunities in Q2
Recommended by Christopher Vecchio, CFA
Get Your Free Top Trading Opportunities Forecast
Get My Guide

Loonie Letdown or Liftoff?

In spite of what remains a rather hawkish Bank of Canada, the Canadian Dollar has taken a step backwards in May as a lack of upward momentum in energy prices coupled with eroding risk appetite (see: stocks) has provoked traders to jettison the higher yielding commodity currency. It now appears that the two major CAD-crosses are at an important juncture, with whatever resolution that emerges ultimately paving the path for a meaningful directional move over the coming weeks in both CAD/JPY and USD/CAD rates.

CAD/JPY Rate Technical Analysis: Daily Chart (September 2020 to May 2022) (Chart 1)

Notwithstanding their strong run in 2022 overall, CAD/JPY rates have eased back in May thus far, carving out a symmetrical triangle on the daily timeframe. While a symmetrical triangle following an uptrend would typically be a continuation effort higher, it must be noted that CAD/JPY rates are testing said triangle support, indicating that a potential top may be forming.

CAD/JPY rates are beginning to edge lower below their daily 21-EMA; the daily 5-, 8-, 13-, and 21-EMA envelope is in neither bearish nor bullish sequential order. But daily MACD continues to rise above its signal line, while daily Slow Stochastics are holding in overbought territory. A close below 100.20 this week would increase the likelihood of a pullback to the late-April swing low at 99.01, followed by a move to the late-March swing low (and the base of the triangle support) at 97.05. A move through triangle resistance near 101.50 would increase the likelihood of gains to the base of the triangle resistance at 102.95.

USD/CAD Rate Technical Analysis: Daily Chart (May 2021 to May 2022) (Chart 2)

USD/CAD rates have started to breach ascending triangle resistance at 1.2949/64, whose larger pattern began forming in June 2021. But the gains have been challenged, with selling pressure emerging in the past two sessions; today, however, while initially producing a return into the ascending triangle, has now seen rates return above the 1.2949/64 area.

There are thus two paths forward for USD/CAD rates: this is either the beginning of a more significant bullish breakout that could play out over the next several weeks and months; or a false bullish breakout will have transpired, setting up the potential for a significant reversal lower. In the event of a bullish breakout, the immediate target higher would be the 50% Fibonacci retracement of the 2020 high/2021 low range at 1.3337. In the event of a bearish reversal, a return back to ascending triangle support near 1.2700 would be expected.

The Quiz
Discover what kind of forex trader you are
Start Quiz

IG Client Sentiment Index: USD/CAD Rate Forecast (May 11, 2022) (Chart 3)

USD/CAD: Retail trader data shows 45.32% of traders are net-long with the ratio of traders short to long at 1.21 to 1. The number of traders net-long is 10.46% lower than yesterday and 10.22% lower from last week, while the number of traders net-short is 18.75% lower than yesterday and 19.24% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse lower despite the fact traders remain net-short.

Trade Smarter - Sign up for the DailyFX Newsletter

Receive timely and compelling market commentary from the DailyFX team

Subscribe to Newsletter

--- Written by Christopher Vecchio, CFA, Senior Strategist

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