Canadian Dollar Forecast: Has USD/CAD Topped? Part II

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD was looking vulnerable in February as trade war themes were pricing-in to macro markets, but a couple months later the long-term range in USD/CAD has so far prevailed.
• In February, just a few weeks after the breakout, I asked if USD/CAD had topped, and now a couple of months later, that looks more and more to have been the case.
• Last week brought an aggressive push below the 1.4000 handle and that was a big move from bears. The fact that sellers did not relent in the following week illustrates a continued show of control.

Indices Forecast

You can often find out the most important information in unfriendly environments, and this statement can be spanned from personal relationships to market dynamics.

Like the old saying goes, you find out who’s your friend in the bad times; well, markets, too, will tend to show you the dominant or most important trends when conditions run counter to their aim. If bulls show up to defend support at a higher-low, for instance, that can be read as a sign of optimism from buyers even after a seemingly pessimistic showing in the market (producing the pullback). Or, if bulls have an open door to run a breakout to another fresh all-time-high, and, suddenly, they fail or back down, and then allow for sellers to take over; well, that can be akin to that friend that doesn’t answer your phone call when you reach out in distress.

You can find out what someone or something is really made of when times are tough.

In USD/CAD bears showed up in February and as I asked a few weeks after the failed breakout, ‘Has USD/CAD Topped?’ Now, a couple months later, it looks more and more like that has been the case, especially considering how quickly the rally in USD and DXY has been re-framed around trade tariff fears.

On the daily chart of USD/CAD, we can see that continued progression of lower-lows and lower-highs. The 1.4500 level held resistance on two occasions in March, and already the 1.4000 level has been broken through in April.

In last week’s USD/CAD article, I highlighted support at 1.3846 which, as of this writing, has held. But I also pointed out the importance of resistance at 1.4000, and as I said then, ideally bears would show a bit of anticipation before the big figure came into play and I drew up a zone from 1.3980-1.4000. The high for this week has been 1.3978 so sellers came in two pips shy of that zone to hold the weekly high.

USD/CAD Daily Chart

USD/CAD

The weekly bar at this point is somewhat indecisive. I’m writing this article on the Thursday before Good Friday which presents some challenge, as spot FX markets are not closed tomorrow while many futures markets are. That opens the possibility of low liquidity which, if met with some headline on tariffs, can produce high levels of volatility. Interestingly, this is somewhat similar to the backdrop that led to the breakout in early-February as it was a low liquidity backdrop on a Sunday open that allowed for the bullish breakout to take-hold, but that wasn’t a holiday and it was a widely-expected tariff date. I highlighted the possibility of pandemonium ahead of that event then and that’s what played out. I hesitate to assume the weekly close at this spot on the chart given that we could see some change if comments from Trump come out in a pointed manner on the tariff topic.

USD/CAD Weekly Price Chart

With that said, the broader bearish trend now has some context. The 1.4000 area remains a viable spot of resistance potential and above that, the 1.4151-1.4178 area is still of note. As I said in the weekend video on USD, I consider USD/CAD to be one of the more attractive major pairs for USD-weakness scenarios.

USD/CAD Monthly

The monthly chart highlights the broader range that’s been in-force for the past nine years, and while February showed stall and March showed sellers getting a bit more aggressive with the lower-highs at 1.4500, it was the first-half of April when sellers really made their mark. The 1.3846 level that’s currently holding the lows also becomes visible as it was resistance at multiple points in 2024 before becoming support later in the year. The 1.3500 level is the next significant psychological level below current price and this was in-play ahead of the election in September, helping to establish a morning star formation that ran into the early-2025 breakout.

This is the perspective with which topping potential looks most attractive as price has simply moved back into the same range that’s held in the pair since 2016, and as can be seen in 2016 or 2017 or again in 2020-2021, when the longer-term range fills in there could be significant opportunity for trends on a shorter-term basis.

USD/CAD Monthly Price Chart

--- written by James Stanley, Senior Strategist