Canadian Dollar Short-term Outlook: USD/CAD Bears Straddle Yearly Open

Canadian Dollar Technical Outlook: USD/CAD Short-term Trade Levels

• Canadian Dollar snaps back to 200-day moving average / 2023 yearly open
• USD/CAD plunges 3% off yearly highs- rebound off downtrend support in focus
• Resistance 1.3640, 1.3685, 1.3739/49 (key) Support 1.3545, 1.3496, 1.3400/18

The Canadian Dollar is on the defensive this week after rallying more than 3% off the yearly extremes against the Dollar. A rebound off downtrend support in USD/CAD is threatening a larger recovery within the November downtrend and the focus is on possible resistance just higher on this stretch. These are the updated targets and invalidation levels that matter on the USD/CAD short-term technical charts.

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Canadian Dollar Price Chart – USD/CAD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/CAD on TradingView

Technical Outlook: In last month’s Canadian Dollar Short-term Outlook we noted that USD/CAD was, “threatening a larger breakdown here at multi-month uptrend support. From a trading standpoint, rallies should be limited to 1.3799 IF price is heading lower with a break here exposing a possible run-on Fibonacci support just below 1.36- look for a larger reaction there IF reached.” Price registered an intraday high at 1.3777 the following day before reversing sharply lower with USD/CAD plunging more than 3% off the November / yearly highs.

The decline rebounded off confluent downtrend support into the monthly open at the 50% retracement of the yearly range at 1.3496- the December opening-range is now taking shape with pricing holding just above the objective yearly open. Looking for a breakout of this range in the days ahead with the Fed interest rate decision on tap.

Canadian Dollar Price Chart – USD/CAD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/CAD on TradingView

Notes: A closer look at Canadian Dollar price action shows USD/CAD trading within the confines of a descending pitchfork extending off the October / November highs. A rebound off the confluent support this week takes price back above the median-line and we’re looking for possible topside exhaustion into the upper parallels in the days ahead

Initial resistance is eyed at the 38.2% retracement of the November decline at 1.3640 backed by the September high-day close / 50% retracement at 1.3685/90. Key resistance / bearish invalidation now eyed at 1.3739/49- a region defined by the 61.8% Fibonacci retracement and the 2022 high-day close.  

Yearly-open support rests at 1.3545 backed closely by the 200-day moving average (currently ~1.3516). Ultimately, a break / close below the December range-low is needed to mark downtrend resumption towards the next major support objective at the 61.8% retracement / 1.618% extension near 1.3400/18- look for a larger reaction there IF reached.

Bottom line: USD/CAD broke the July uptrend last month with the pullback rebounding off downtrend support this week- immediate focus is on a breakout of the December opening-range for further guidance. From a trading standpoint, rallies should be limited to 1.3749 IF price is heading lower on this stretch with a break / close below 1.3496 needed to fuel the next leg in price. Keep in mind we have key US inflation data and the Fed interest rate decision on tap next week- stay nimble here and watch the weekly closes. I’ll publish an updated Canadian Dollar Weekly Technical Forecast once we get further clarity on the longer-term USD/CAD trade levels.

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Written by Michael Boutros, Sr Technical Strategist with FOREX.com

Follow Michael on X @MBForex