Canadian Dollar Forecast: USD/CAD Six-Month High Over 1.4000

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD has set a fresh six-month high to test above the 1.4000 psychological level, and the pair remains one of the more attractive major FX pairs for USD-strength scenarios.
• As looked at in last week’s webinar, higher-low support has held and prices have continued with fresh higher-highs. The big question now is re-acceptance at 1.4000, and last week saw the close hold above that price and so far this week, that level has been supported again.

 

USD/CAD has continued to fresh six-month highs and despite the recent lag behind both DXY and EUR/USD’s show of USD-strength, the pair remains attractive for bullish trend continuation in the US Dollar.

The spot on the chart that the pair is currently trading through needs to be taken into account as the psychological level at 1.4000 has some history. This was the spot that held the lower high back in May, just before sellers continued the short-side trend that ultimately stalled just above the 1.3500 level. Along the way, there was a hold of support at 1.3750, which later became resistance in the ascending triangle, and more recently, support as the pair has launched up to current fresh highs.

A level of this nature, a major psychological level that’s already shown tendency to induce inflections and directional changes, can start to bring impact before actually trading. As price gets closer to a test, the perceived risk-reward of following the trend can become askew, thereby dampening buyer behavior. This is likely at least part of what took place when the pair stalled about 20 pips shy of the big figure on October 2^nd. But – it was the pullback from that which held strong as support remained around prior resistance of 1.3936, and bulls were able to breakout as USD-strength was running last Thursday. I looked into this during the weekly webinar and so far, the trend has continued to play out.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Big Picture

From the weekly chart and with view of the decade-long range, we can see how important that 1.4000 level has been. In 2022, after the USD had surged on the back of the Fed’s rate cuts, buyers continually failed to push above the big figure for much the next two years. It wasn’t until last November, on the heels of the Trump election, that USD/CAD was finally able to mount above the big figure, and that surge lasted into the New Year until another major psychological level came into play at 1.4500. That price is what ultimately reversed the trend in Q1 of this year, with a massive sell-off following.

But that trend began to stall in June and July, and since then, buyers have been taking over with more and more control as illustrated by the 38.2% retracement of this year’s sell-off.

The Fibonacci retracement produced by that move also provides some scope for follow-through resistance, as the 1.4167 level aligns with a prior swing-low.

USD/CAD Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Shorter-Term Structure

As of this writing USD/CAD is very near the recent highs and this is a price that’s already been tested twice (a 3^rd time including the current test).

This is a challenging area to establish bullish exposure given that context, and also taken from the fact that price has moved quite far from the recent swing-low. But, from the four-hour chart this can help to identify recent bullish structure, and that can help to devise strategy for bullish continuation scenarios.

The 1.4000 level is obviously the big deal here but given the newness of this test, it would be presumptuous to assume acceptance just yet. But – a pullback to and show of support around that price can begin to build the argument on a shorter-term basis. This would be illustrated by an underside wick on the four-hour chart, showing bulls responding to a pullback below the big figure followed by a show of strength, which can be looked at as s show of value on the long side of the move.

If that doesn’t hold, it’s the 1.3981 level that sits below, and this has already shown a support test with an underside wick illustrating bullish reaction, and the other side of the level saw that as resistance on October 2^nd.

Below that is the support I had looked at in last week’s webinar a 1.3936. This is another spot of resistance-turned-support and it held a few different tests on the four hour last week, so, ideally, this would be a price that buyers wouldn’t allow to break for bullish continuation to remain in order.

Below that is another spot of resistance turned support and this is what I’m considering as invalidation in the current backdrop. This spans from 1.3889 up to 1.3905.

USD/CAD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist