Canadian Dollar Short-term Outlook: USD/CAD Rips Toward Resistance

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

• USD/CAD reverses off downtrend support- rally approaching first test of resistance post-Fed
• USD/CAD risk for exhaustion / price inflection ahead – Key U.S. / Canada inflation data on tap
• Resistance 1.3714/40 (key), 1.3795/98, 1.3881/99 - Support 1.3571/90 (key), 1.3504/23, 1.3420

The U.S. Dollar is poised to mark a second daily advance against the Canadian Dollar with USD/CAD up more than 0.8% this week. A rebound from downtrend support is extending towards initial resistance on the heels of today’s FOMC interest rate decision and marks the first test of the Dollar bulls. Battle lines drawn on the USD/CAD short-term technical charts.

Canadian Dollar Price Chart – USD/CAD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/CAD on TradingView

Technical Outlook: In my last Canadian Dollar Short-term Outlook, we noted that USD/CAD was, “threatening a major breakdown here and the immediate focus into the start of the week is on possible resistance head of the monthly open. From at trading standpoint, rallies should be limited to the median-line IF price is heading lower on this stretch with a close below 1.3590 needed to fuel the next leg of the decline.” Price registered an intraday high at 1.3728 the following day before marking an outside-day reversal lower. The subsequent sell-off registered a close low at 1.3571 on Monday before rebounding with USD/CAD now rallying more than 1.1% - is a low in place? The immediate focus is on this initial test of the median-line with lateral resistance seen just higher.

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 rallying into the median-line today with key near-term resistance eyed at 1.3714/40- a region defined by the 78.6% retracement of the September rally, the 38.2% retracement of the broader 2021 rally, and the objective June open. Note that the 2022 trendline (red) converges on this threshold over the next few days and a breach / close above would be needed to suggest a more significant low is in place / a larger recovery is underway. Subsequent resistance objectives eyed at the May open / 61.8% retracement at 1.3795/98 with broader bearish invalidation at the 2022 high close / 2023 high at 1.3881/99.

Initial support rests with the 2024 May, June & July lows and the 2025 low-day close at 1.3571/90- a break / close below this threshold would threaten resumption of the broader downtrend towards 1.3504 and the March low at 1.3420. Look for a larger reaction on a test of the lower parallel IF reached.

Bottom line: The USD/CAD recovery is now testing downtrend resistance at the median-line and the first major hurdle- looking for possible price inflection off lateral resistance just higher. From at trading standpoint, losses should be limited to the low-day close IF price is heading higher on this stretch with a close above the monthly open needed to fuel a larger recovery.

Keep in mind U.S. markets are closed tomorrow with key inflation updates on tap next week (Canadian CPI figures and the U.S. Personal Consumption Expenditures). Stay nimble into the releases and watch the weekly closes here for guidance. Review my latest Canadian Dollar Weekly Forecast for a closer look at the longer-term USD/CAD technical 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

Follow Michael on X @MBForex