Canadian Dollar Short-term Outlook: USD/CAD Reversal at Key Support

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

• USD/CAD poised to mark a five-day decline / outside weekly reversal off yearly highs
• Canadian Dollar now approaching technical pivot zone- Canada employment, US CPI on tap
• Resistance 1.3791-1.3808, 1.3881/99 (key), ~1.3930s- Support 1.3702/25 (key), 1.3665, 1.3590/99

The US Dollar is poised to mark a fifth consecutive daily loss against the Canadian Dollar with USD/CAD off more than 1.6% from the weekly high. Price is now poised to mark an outside weekly reversal off fresh yearly highs with the decline now trading into multi-week uptrend support. Battle lines drawn on the USD/CAD short-term technical charts heading.

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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 note that USD/CAD was, “USD/CAD is threatening a breakout of a multi-month consolidation pattern with the rally now testing initial resistance hurdles. From a trading standpoint, losses should be limited to the monthly open IF price is heading higher on this stretch with a close above 1.3791 needed to fuel the next leg in price.” USD/CAD broke resistance the following day with price surging more than 2.6% off the July low to briefly register an intraday high at 1.3946 into the August open.

The advance failed to mark a daily close above key technical resistance on Monday at the 2022 high-close / 2023 high at 1.3881/99 with a USD/CAD plunging more than 1.6% off the highs. The decline is now testing at the first major support hurdle and we’re looking for a reaction here in the days ahead.

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 continuing to trade within the confines of the ascending pitchfork formation we identified last month, with the upper parallel further highlighting this week’s turn from resistance. The lower parallel now converges on technical support at 1.3702/25- a region define by the 100% extension of the most recent decline off the highs and the 61.8% Fibonacci retracement of the July rally. We’re looking for possible inflection off this mark with a close below the 78.6% retracement at 1.3665 needed to invalidate the broader December uptrend. A critical support pivot rests at 1.3591/99 in the event of a break.

Initial resistance is eyed at the June high / August open at 1.3791-1.3808 and is backed again by key resistance at 1.3881/99. A breach / weekly close above this threshold will be needed to mark uptrend resumption with such a scenario exposing the upper parallel (currently ~1.3930s) and the next major resistance hurdle at 1.3977/90- a region defined by the 2022 high and the 2020 March weekly reversal close. Look for a larger reaction there IF reached.

Bottom line: USD/CAD is poised to mark an outside weekly-reversal off fresh yearly highs with near-term uptrend support now in view. From a trading standpoint, a good zone to reduce short-exposure / lower protective stops- rallies would need to be limited to the median-line IF price is heading lower with a close below 1.3665 needed to invalidate the broader uptrend.

Keep in mind we get the releases of Canada employment data tomorrow with key US inflation data on tap next week. Stay nimble into the releases and watch the weekly closes here for guidance. Review my latest Canadian Dollar Weekly Technical Forecast for a closer look at the longer-term USD/CAD trade levels.

Key USD/CAD Economic Data Releases

Economic Calendar - latest economic developments and upcoming event risk.

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

Follow Michael on X @MBForex