Canadian Dollar Price Outlook: Loonie Strength, USD/CAD to Support

Canadian Dollar Price Outlook Talking Points:

• It‘s been a busy past week in USDCAD, as last Thursday saw the pair peek above its prior month-long range, but that was followed by an aggressive reversal that’s seen as many as 200 pips taken out of the USDCAD spot as USD-weakness has taken-over.

• The Canadian Dollar weakened after last month‘s BoC rate decision and USD/CAD tested up to a fresh six-month-high. But buyers were unable to hold the move and this week’s run of USD-weakness has driven USDCAD back down towards six-week-lows.

• This Friday brings jobs reports out of both the United States and Canada, keeping USDCAD in the spotlight for themes of near-term volatility.

USDCAD Tests Key Support After BoC-Fueled Bullish Breakout Pulls Back

It‘s been a busy week in USDCAD. Last Wednesday brought the May rate decision from the Bank of Canada, and despite the fact that inflation rests very close to the bank’s 2% target, the overall tone came off in a generally dovish manner. The bank removed a prior statement alluding to returning to the neutral rate, indicating that the BoC isnt looking as closely at future rate hikes as they were previously. This helped USD/CAD to spike up to a fresh six-month-high, threatening to break a range that had built-in over the prior month of price action.

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Prices in USDCAD rallied to as high as 1.3565, which was an initial target level looked at for bullish breakout potential in the USDCAD technical piece published last Tuesday, ahead of the BoC rate decision. That price has turned out to be the fresh six-month-high, and since that level has come into play, an entirely new theme has enveloped the pair as USD-bears have come into the matter with aggression.

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USDCAD Two-Hour Price Chart

Chart prepared by James Stanley

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At this point, support is showing in the same area thats helped to hold the lows over the past six weeks. Within a 24-pip span are three different Fibonacci levels from three different major moves, making for a confluent zone of support that runs from 1.3361-1.3385. This can keep the door open for bullish strategies in the pair, particularly for traders that are looking to fade this recent run of US Dollar weakness.

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USDCAD Four-Hour Price Chart

Chart prepared by James Stanley

USDCAD Strategy Moving Forward

At this point, the door could be open on the bullish side of the pair from both range and longer-term trend points-of-view. On the range side of the coin, prices are in that batch of support thats held the lows for the past six weeks but taking a step back on the chart presents trend possibilities, as well, particularly considering that last week saw the pair put in a fresh higher-high.

Even if the current juncture of support does break, theres another area just below current prices that could elicit a similar theme, and that runs from the psychological 1.3250 up to 1.3000. For those looking at bearish scenarios in the pair, they would likely want to see that zone tested first before looking to get on the short-side of USDCAD. A test to that deeper zone of support could open the possibility of lower-high resistance at our current area, thereby giving rise to a fresh initiation of longer-term lower-lows and lower-highs.

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USDCAD Daily Price Chart

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Chart prepared by James Stanley

To read more:

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

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Forex Trading Resources

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--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX