Canadian Dollar, USD/CAD Talking Points:
- USD/CAD is back up for a test of three-month-highs following yesterday’s test of support at prior resistance.
- As the door opens into Q4 the USD/CAD pair remains one of the more attractive venues for USD-strength scenarios.
The third quarter just completed with a slight gain for the US Dollar, but it was a larger move in USD/CAD as Canadian Dollar weakness contributed to a series of higher-lows from June and into July that, eventually, led into a build and break of an ascending triangle formation. And then after that late-July breakout, USD/CAD then tested support at prior resistance three times before ultimately breaking out to fresh three-month-highs in late-Q3 trade.
As we move into Q4, there remains a possibility of a repeat scenario of last year, when the US Dollar rallied even as the Fed continued to cut rates. And with inflation remaining high while questions percolate around the labor market in the US, that scenario remains a distinct possibility. It was the Fed’s cuts with high inflation last year that helped to boost long-term Treasury yields, as investors holding bonds would only see those returns erode with higher inflation expected down to the road. And that’s what seemed to have more pull on USD price action than the Fed’s cuts.
In USD/CAD, the pair is working on a morning star formation on the daily chart, following a test and hold of support as taken from prior resistance, around the 1.3889-1.3905 zone. This keeps the door open for a test of the psychologically important zone around the 1.4000 handle, which was last in-play in May as it held resistance over a week before sellers were finally able to re-take control.
USD/CAD Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
