Canadian Dollar Technical Analysis: USD/CAD, EUR/CAD, GBP/CAD

Canadian Dollar Talking Points:

• The Canadian Dollar showed strength last week against the Euro, British Pound and US Dollar.
• USD/CAD built a doji on the weekly chart with a slight loss, but the bullish CAD theme was more on display against weakness in the Euro and British Pound. I had looked at this theme a week ago and today I update that vantage point.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

The Canadian Dollar continues to show strength against many major currencies, and last week it was one of the few major currencies that was able to outpace the US Dollar despite a strong run in DXY on Thursday and Friday, following the release of US CPI numbers. Tomorrow brings Canadian inflation numbers and that begins to set the stage for a Bank of Canada rate decision scheduled for Wednesday of next week, and this can keep the Canadian Dollar on the move.

As I had discussed a week ago, there remains the possibility of more rate hikes in Canada and we heard that echoed later last week from BoC Governor, Tiff Macklem. He directly said in a speech that ‘the fight against inflation is not over,’ and this keeps the BoC in a similar stance as the FOMC, where more hikes may be needed for the banks to get some confidence that inflation is under control.

Meanwhile, in Europe or the UK, it looks as though rate hikes may have met their end and this helps to explain the recent deviation in trends across major pairs. From the July low up to last week’s high, the USD was up by 7.79%, while USD/CAD was only up by as must as 5.29%. Meanwhile, the Euro was down by -7.34% against the USD, and GBP was down by more than 8%.

As I looked at last week, this could make for a more logical fit for CAD-bulls to instead look at cross pairs such as EUR/CAD or GBP/CAD given the diverging fundamental case, where both the USD and CAD may see rate hikes from their respective economies.

In USD/CAD, the pair built a doji last week right at a big spot of resistance of 1.3652. That level is the 61.8% Fibonacci retracement of the 2020-2021 major move, and this price has been in-play multiple times this year.

At this point, the pair remains in a symmetrical triangle, with trendline resistance helping to hold the highs, and support showing at 1.3575, 1.3500 and then 1.3387.

USD/CAD Weekly Price Chart

EUR/CAD

EUR/CAD took a step back last week, with resistance holding inside of the 1.4500 psychological level. At this point price is testing a zone of support that’s been rather stubborn so far this year, plotted from the 1.4235 up to 1.4328. That latter price is helping to set the low as we closed last week and remains in-play today.

EUR/CAD Weekly Price Chart

EUR/CAD Shorter-Term

At this point, the concern for bears in EUR/CAD is likely the prospect of a higher-low holding off of that longer-term zone of support. From the daily chart below, we can see sellers responding to a couple of different spots of resistance over the past couple of weeks: First at the prior swing-low of 1.4485, just inside of the 1.4500 handle, and then last week at the Fibonacci level at 1.4435. These would be spots that sellers would need to defend to keep the door open for bearish continuation scenarios, and if we do see sellers elicit a breach of 1.4328, then the door begins to open for a re-test of the bottom of that zone at 1.4235. And after that, the next major spot of support is the current 2023 low that was set a few weeks ago at 1.4158.

EUR/CAD Daily Price Chart

GBP/CAD

The weekly chart of GBP/CAD has a similar feel, where the pair set a fresh low a couple of weeks ago which was followed by a strong bounce. Last week’s candle held resistance inside of the prior weekly high, taken from around the 1.6750 level. There’s also a Fibonacci level of interest nearby, with the 38.2% retracement of the 2015-2022 major move at 1.6700.

Also of interest for resistance is the 200 day moving average, which has been tested as resistance for each of the past two weeks.

GBP/CAD Weekly Price Chart

GBP/CAD Shorter-Term

From the daily chart below, we can get a better view of that 200 day moving average coming in as resistance, which held the highs last Wednesday and Thursday. In response, sellers pushed on Friday and at this point we can see this week’s low showing around a prior spot of resistance, above the 1.6500 handle.

This provides a bit of context for bears to operate, as the swing high at 1.6763 would need to remain defended to keep the door open for a continuation of lower-lows and lower-highs. Sellers would need to take out support at 1.6565 to continue the move, after which the swing low at 1.6359 would be vulnerable, with the 1.6500 handle as a possible short-term support along the way.

If bulls can hold support at 1.6565, this could be construed as a possible higher-low, but buyers would need to punch through resistance at 1.6763 to open the door for short-term bullish trend continuation, This would highlight a possible revisit of 1.6860, after which the 1.7000 level comes into the picture.

GBP/CAD Daily Price Chart

--- written by James Stanley, Senior Strategist