Canadian Dollar Technical Analysis: USD/CAD Snaps Back from Support

Canadian Dollar, CAD, USD/CAD Talking Points:

• USD/CAD has been quite volatile since last week’s breakout. The pair put in a strong topside move into the FOMC rate decision and that was quickly erased after the meeting.
• USD/CAD weakness held through this week’s open but sellers were unable to leave behind a massive spot of support at 1.3652, which is a Fibonacci level that’s been in-play practically all year on the pair.
• 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.

It’s been a busy couple of weeks for USD/CAD.

First, bulls took charge and produced a bullish breakout that led into last week’s FOMC rate decision. USD/CAD strength had started to show in earnest the week before at the Bank of Canada rate decision, and we moved closer to the Fed’s rate meeting buyers pushed price all the way up to a key resistance zone at 1.3850-1.3900.

This was a fresh yearly high for the pair and the top-end of that zone held the advance into FOMC day last Wednesday.

The major takeaway for the FX market from that meeting was USD-weakness, which ran aggressively for the remainder of the week. Along the way almost the entirety of that prior breakout in USD/CAD was erased, leaving a bearish engulfing candlestick on the weekly chart. There was also the matter of support as a familiar level had come back into play during that bearish run. This is the 1.3652 Fibonacci level that’s remained in-play in numerous ways in USD/CAD throughout this year.

USD/CAD Weekly Price Chart

Going down to the daily chart can further highlight this bounce. I had spoken of this on the Tuesday webinar, highlighting a possible spot of lower-high resistance for bounce continuation scenarios. That price was at 1.3814, and it’s back in the picture now as it’s so far held a lower-high.

Bulls haven’t shown any signs of quitting yet, however, so another re-test of the 1.3850-1.3900 zone cannot be ruled out. The big question is whether bulls will fare a more positive fate on another test.

USD/CAD Daily Price Chart

USD/CAD Bigger Picture

Over the past eight years USD/CAD has shown a tendency to range. I spoke about this in the Tuesday webinar, highlighting a feature that can show in natural cross pairs such as USD/CAD. The complication that bulls could soon face is that if price does pose a breakout above the 1.3900 zone that held the highs last week, there’s another major level sitting overhead at 1.4000.

As you can see from the below monthly chart, through the duration of this eight-year range, there’s been little of positive note for bulls above that 1.4000 big figure. Now that’s not to say that it can’t happen, but if it does, projecting a different outcome than what’s happened over the past two instances could be difficult.

The high point for that range is all the way up at 1.4668, which has been touched twice, in 2015 and then again in 2020 as covid came into the picture. Notice, however, that both of those instances were fast met by sellers pushing price right back-below the big figure.

So, if we do get above 1.4000 the natural next question is whether reversal may soon show, as major psychological levels on a natural cross can have a tendency to bring commercial investors or hedgers into the mix to take advantage of the spot rate showing a historical deviation. As a case in point, the support for that multi-year range is around the 1.2000 handle.

USD/CAD Monthly Chart

--- written by James Stanley, Senior Strategist