Can USD/CAD Reverse Course and Rally?

USD/CAD Value Outlook:

• USD/CAD fell to its lowest degree since September 2017 this week however has since reversed
• Rising danger aversion, falling crude oil costs and potential taper discuss from the Fed may look to drive a USD/CAD restoration rally
• Nonetheless, the pair has declined for months and trying to name a backside close to the bottom degree in 4 years generally is a dangerous endeavor

Canadian Greenback Value Forecast: Can USD/CAD Reverse Course and Rally?

USD/CAD was supplied a short reprieve from months of constant promoting stress as market members turned to Fed assembly minutes for perception. Previous to the report, USD/CAD slipped to its lowest degree since September 2017 and the worth chart reveals a collection of decrease highs and decrease lows. Upon launch, the FOMC minutes revealed “a pair” Fed officers expressed concern of inflation constructing to “unwelcomed ranges.” The findings have led some buyers to imagine the start of taper discuss has arrived which may show bullish for the US Greenback.

In consequence, USD/CAD has moved off its recent lows and close by help and may look to proceed larger now {that a} main basic tailwind may choose up. Additional nonetheless, latest widespread danger aversion and slipping crude oil costs may work to undermine the Canadian Greenback at a time when the US Greenback is having fun with newfound power. Collectively, the elemental forces at play may assist propel USD/CAD larger because the pair appears to get well misplaced floor and keep away from deeper declines.

Canadian Greenback (USD/CAD) Value Chart: Weekly Time Body (January 2002 – Could 2021)

That mentioned, trying to name a backside after the pair simply hit its lowest degree since 2017 is moderately presumptuous and will see merchants seize a falling knife as a substitute. Persistence could also be warranted and if the pair ought to reverse decrease, help across the 1.1920 and 1.1780 ranges will supply bulls a possibility to make a stand and stave off deeper declines given the brand new info.

Canadian Greenback (USD/CAD) Value Chart: Day by day Time Body (August 2019 – Could 2021)

Then again, USD bulls keen to achieve publicity must negotiate a plethora of resistance on the USD/CAD chart if value strikes larger. Preliminary obstacles to a continuation rally could reside round two descending trendlines round 1.2184 and 1.2273 respectively. The degrees have influenced value quite a few instances all through the final yr and will look to take action sooner or later.

Within the greater image, any longer-term breakout must pierce the zone of resistance from 1.2618 to 1.2683 earlier than persevering with larger in earnest. Given the space from the present spot value to the barrier, nonetheless, it might be moderately early to debate technique across the space. Nonetheless, merchants ought to control the zone if USD/CAD begins to rally.

IG shopper sentiment knowledge reveals retail purchasers are overwhelming net-long USD/CAD. In reality, the ratio of USD/CAD merchants lengthy to brief is larger now than any time within the final six months. Since we sometimes take a contrarian view to crowd sentiment, retail positioning knowledge could recommend the pair will proceed to fall.

Whereas the USD/CAD value chart is at an undoubtedly vital junction and new info may change its trajectory, taking up publicity at this level is unattractive from a risk-reward perspective – for my part. USD bulls could also be clever to attend for additional topside progress to attempt their hand and bears may contemplate additional progress beneath the 2017 low earlier than positioning for additional draw back. Within the meantime, comply with @PeterHanksFX on Twitter for updates and evaluation.

–Written by Peter Hanks, Strategist for DailyFX.com

Contact and comply with Peter on Twitter @PeterHanksFX