Canadian Dollar Forecast: USD/CAD Recovers but Which Trend Prevails?

Canadian Dollar Summary

The Canadian Dollar rallied after the BoC rate cut on Wednesday, but that move was short-lived as support showed in USD/CAD at the 1.3900 level and the back-half of the week saw buyers regain control of the pair. This sets up a short-term inverse head and shoulders pattern in USD/CAD and if we do see the larger theme of USD-strength continue the pair could soon be trading at fresh six-month highs.

USD/CAD was in breakdown mode through Wednesday morning and the Bank of Canada rate decision helped to provide some fuel for sellers. Despite the bank cutting rates yet again, the prospect of a BoC on hold in the near future prodded a degree of CAD-strength, and when meshed up with a USD driven by the expectation for more cuts in December and into next year, there was a clear shift of weakness from the fundamental drive in USD/CAD.

That move continued a sell-off that sparked from a rising wedge formation. There was a minimum of resistance at the 1.4000 handle when buyers were driving the move but once above the psychological level, momentum began to slow at highs even with bulls remaining aggressive on pullbacks. The initial drop below 1.4000 was paused at the 1.3981 level, but sellers went for the break at the Bank of Canada announcement until running into the 1.3905 level that I had highlighted in the webinar on Tuesday.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Shorter-Term

I looked at an updated view of the pair on Thursday, and while there remained some bearish items, such as the hold of 1.4000 resistance or the broader rising wedge that price action still remained below, the v-shaped reversal from support was something that demanded respect. And as a continuation of that, buyers have been able to push back above the vaulted psychological level at 1.4000 to find resistance at the familiar 1.4034 level.

This brings on the image of an inverse head and shoulders pattern and given the storyline behind the move, the plot fits, as sellers had an open door to drive a break, were thwarted at a key spot of support, and buyers have since regained control with reference to the same levels that were in-play ahead of the initial breakdown move. Next resistance overhead is the 1.4061 level, the same looked at in the Tuesday webinar and the Thursday article, and beyond that is 1.4080 which is the current six-month high in the pair.

USD/CAD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.