Canadian Dollar Technical Forecast: USD/CAD 1.4000 Test After 4-Year Highs

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD pushed above the 1.4000 level last week and that was the first such instance since May of 2020 during the pandemic.
• That 1.4000 level has been a big spot in USD/CAD as we’ve seen multiple bullish trend stall ahead of a test there, with the 2022 high printing 23 pips inside of the big figure and last year’s run stalling at the 1.3900 handle.
• Despite a strong bid in USD earlier today with EUR/USD pushing below 1.0500, USD/CAD has continued to show weakness. DXY is testing range resistance and if we see that range hold and DXY move back into mean-reversion, USD/CAD is of interest for its own mean reversion themes.

For the past nine years, USD/CAD has been in a range. It was January of 2015 when the pair broke above the 1.2000 handle and by December of that year, the pair was testing the 1.4000 handle. That was a strong and consistent trend and in January of 2016, the pair tried to break out but failed, finishing the month back-below the psychological level.

It took four more years for the next test and this time; the USD was being pushed-higher at the onset of the pandemic. The initial response of USD-strength as a flight-to-quality drove global markets helped USD/CAD to again test above the 1.4000 level; and this time there was even a monthly close above that price. But that too could not hold and in the months that followed, price gave back that Covid-fueled gain.

By summer of 2021 the other side of the range had come into play again and this time it was buyers jumping in to defend the 1.2000 handle, setting the 2021 low just seven pips above that price.

As the Fed went into a rate hiking cycle in 2022, buyers were back on the bid of the USD and the range continued to fill; and in this case, USD/CAD held resistance a mere 22.3 pips inside of the 1.4000 handle. And then last year, the high for 2023 printed 100 pips inside of that figure at 1.3900.

So the 1.4000 level has been a contentious price in USD/CAD and it wasn’t until last week’s breakout that buyers were finally willing to test above that price. And so far, bears have responded by pushing price back below the big figure.

USD/CAD Monthly Chart: The Big Picture Range

USD/CAD Weekly

The weekly chart has some important perspective here as so far this week has been a retracement of last week’s breakout. But – it’s still too early to call this a bearish situation, as there’s been a hold of support at the August high around 1.3950. And there’s additional context for support a little lower, around the 1.3900 handle that had set the high last year.

Tomorrow’s price action will be important because if we do see bears push into the end of the week to take out the 1.3900 level, that could be seen as a rebuke of the 1.4000 test, keeping the door open for longer-term mean reversion such as what showed on the above chart.

USD/CAD Weekly Price Chart

USD/CAD Shorter-Term

The four-hour chart is where this gets more interesting, as early-week price action prodded a bounce back above the 1.4000 handle, which came into play yesterday, but sellers defended that aggressive, exposing an upper wick on the four-hour candle that tested that price. That then led to a lower-low that came into play earlier this morning, setting the stage for a bearish sequence as we move into the final day of the week.

This also provides some structure to work with: There’s a prior swing level a little higher around 1.3968 that’s currently in-play, and above that, another prior swing at 1.3978 that held a lower-high before that test of a lower-low earlier today.

Of course, the big level is the 1.4000 handle and a weekly close below that keeps the door open for bears into the end of the month; and if the November monthly candle can close below 1.4000, the prospect of bigger-picture mean reversion can remain attractive.

USD/CAD Four-Hour Chart

--- written by James Stanley, Senior Strategist