Canadian Dollar Technical Analysis: USD/CAD Snaps Back From Six-Month Highs

Canadian Dollar, USD/CAD, EUR/CAD, GBP/CAD Talking Points:

• USD/CAD had an extremely strong bullish breakout begin in late-September that ran through the October open, allowing for a fresh six-month high to be set last week.
• As the USD trend cooled in the back-half of last week, so did the breakout in USD/CAD. And as USD pulled back last week, the Canadian Dollar showed strength on the back of Friday’s jobs report. This raises the potential for bigger-picture bearish themes in EUR/CAD and/or GBP/CAD looked at below.
• 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 US NFP report on Friday saw a massive beat to the headline number, and so did the Canadian jobs report issued at the same time. While USD-strength was well-priced going into last week’s employment data, the Canadian Dollar hadn’t been able to keep pace, evidenced by last week’s breakout in USD/CAD to fresh six-month highs ahead of that jobs release.

As the USD came into last week on the heels of 11 consecutive weekly gains, USD/CAD had similarly trended-higher for much of that time. But, notably, CAD-strength had acted as a drag on the matter, as DXY had gained 7.79% from the July low up to last week’s high, while USD/CAD was showing a more moderate run of +5.29% over the same period. The difference between the two markets, of course, is the inclusion of the Canadian Dollar and this highlights the fact that USD/CAD may not have been the most optimal pair to work with USD-strength through that bullish-USD theme. And, conversely, this fact could make the pair as a more interesting candidate if we are, in fact, looking at a deeper USD-pullback type of scenario given that inclusion of recent-CAD strength.

From the weekly chart below, we can see that failed breakout last week showing around a key spot on the chart. The 1.3652 level is a Fibonacci level that’s had impact for much of this year, first as resistance in February before becoming support in March; and then another show of resistance in April, May and again in September.

For support, the 1.3387 swing came into play three weeks ago to help set the low, and this was a spot of prior resistance-turned support, and this remains relevant should bears continue to push. Along the way, the 1.3500 level looms large as the psychological level was helping to set support in late-August.

USD/CAD Weekly Price Chart

Chart prepared by James Stanley, USD/CAD on Tradingview

Given the dynamic with a show of CAD-strength, there may be more amenable pastures for USD-bulls looking for a pair to work with US Dollar strength themes. This isn’t to say that the trend is over, however, as the daily chart below highlights remaining bullish structure after last week’s higher-high to go along with the higher-low that built in September trade.

The 1.3500 level can remain of interest for support potential and that level is confluent with a bullish trendline into early-next week. If bulls fail to hold that support, the next significant level from the below daily chart plots at that 1.3387 spot that held the lows in early-September. But more to the point, for CAD-bulls that are looking for a larger run of Canadian Dollar strength, there may be more amenable pastures elsewhere, which I’ll look at after the next chart.

USD/CAD Daily Price Chart

EUR/CAD

While the US Dollar is pulling back from a massive bullish trend that ran for 11 consecutive weeks, the Euro remains on its back foot. Euro weakness was a major contributing factor to that run of USD strength and to keep up the comparisons, while DXY showed a 7.79% rally and USD/CAD jumped by 5.29%, EUR/USD sold off by 7.34% from the July high down to last week’s low.

In the US, questions abound about rate hike policy and strong US data keeps the door open for another hike later this year. In Europe, that door doesn’t seem as open and that’s helped to keep the single currency on its back foot for the better part of the past three months.

As such, for traders looking to work with themes of CAD-strength, there may be a more amenable fundamental backdrop against the Euro. The pair tested a fresh 2023 low two weeks ago and then bounced into the 1.4500 level, which has since held as resistance. This is a spot of prior support, and this could potentially be a lower-high item of resistance.

EUR/CAD Weekly Price Chart

GBP/CAD

Taking that idea a step further, GBP/USD showed even worse performance than EUR/USD or USD/CAD during that run of USD-strength. GBP/USD was down by as much as 8.41% from the July high down to last week’s low, and that compares to a more moderate sell-off of 7.34% in EUR/USD and a gain of 5.29% in USD/CAD. And like we looked at above, this could open the door for taking what’s been a weak fundamental theme elsewhere and meshing that with a potentially strong Canadian Dollar in the effort of finding trend potential.

Like EUR/CAD above, the pair had set a fresh low just a few weeks ago, which has been followed by a bounce. In GBP/CAD, that short-term resistance showing at prior support also plots around a Fibonacci level, with the 1.6700 handle showing as the 38.2% Fibonacci retracement of the long-term major move. A hold of resistance at that level can keep the door open as a lower-high, with key support showing at the 1.6359 level that marked the low two weeks ago. If bears can breach that point on the chart, the next major spot would be the current 2023 low at 1.6085.

GBP/CAD Weekly Price Chart

--- written by James Stanley, Senior Strategist