Canadian Dollar Short-term Outlook: USD/CAD Reversal Risk Builds

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

• USD/CAD rebounds off confluent support- bulls attempt third consecutive daily advance
• USD/CAD median-line break threatens larger recovery within yearly downtrend
• Resistance 1.3881-1.39, 1.3978-1.4020 (key), 1.41- Support 1.3795/98, 1.3714/29 (key), 1.3590-1.3614

The U.S. Dollar is on pace for a third-consecutive daily advance against the Canadian Dollar, with USD/CAD up nearly 1.2% from the monthly / yearly lows. A rebound off technical support is attempting to breach initial resistance at the monthly open, marking the first major test for the 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 testing, “confluent resistance near the 200-day moving average and the focus is on a reaction off this mark. From a trading standpoint, losses should be limited to 1.3881 IF price is heading higher on this stretch…” USD/CAD broke lower the following week with price plunging nearly 2.4% off the monthly high. The decline rebounded off confluent support last week at 1.3714/29- a region defined by the 78.6% retracement of the September rally and the 38.2% retracement of the broader 2021 advance. The immediate focus is on this recovery with the bulls attempting to pivot back above the median-line today.

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 rebounding of the 25% parallel early in the week with this advance breaking above the objective monthly open / 61.8% retracement of the late-2023 advance today at 1.3795/98- look for initial support there now.

Resistance is eyed at the 2022 high-close / 2023 high at 1.3881/99 and is backed by bearish invalidation 1.3977-1.4020- a region defined by the 2022 high, the 2020 March weekly reversal close and the 200-day moving average. Look for a larger reaction there IF reached with a breach / close above needed to suggest a more significant low was registered this week / a larger trend reversal is underway.

A break of the weekly range-lows would threaten resumption of the yearly downtrend with subsequent support objectives seen at the 1.3590-1.3613 and 1.3504/23- a region defined by the 1.618% extension of the February decline and the 78.6% retracement.

Bottom line: A rebound off confluent support threatens a larger recovery within the broader downtrend. From at trading standpoint, look to reduce long-exposure on a stretch towards the upper parallels- rallies should be limited to the 200-day moving average for the yearly downtrend to remain intact with a break / close below 1.37314 needed to mark resumption.

Keep in mind we get the release of key U.S. inflation data on Friday with the Core Personal Consumption Expenditures on tap into the close of the month- stay nimble into the release and watch the weekly close 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