Canadian Dollar Outlook: USD/CAD Bulls Bring Bounce from 1.4000

USD/CAD sellers had an open door to prod a pullback last week but not only did they fail to run with a test below the 1.4000 big figure, they were quickly trampled over by buyers pushing price back up to 1.4100. For the past two days, however, there’s been stalling inside of the previous high and this urges caution for bullish continuation strategies for now.

From a structural standpoint, USD/CAD still looks like one of the more attractive major pairs for USD-strength scenarios. The fact that USD/CAD remains so near recently-established seven-month-highs as the US Dollar stalls around five-month highs illustrates that fact well.

Perhaps more attractive for bulls is the deduction from last week, as sellers prodded the first significant re-test below the 1.4000 handle since the breakout on October 31^st. Bears were soundly re-buffed after last Tuesday’s daily candle held a close above the 1.3980 level, which I’ve been tracking as the bottom of the zone linked with that 1.4000 big figure. And in the week since price had pushed right back up towards that prior high, which itself, was a stall point just ten pips below a significant area of prior resistance-turned-support.

I’ve been talking about the 1.4151-1.4178 zone for months, even when it seemed unreasonable to consider a re-take of the 1.4000 handle. But now that’s the price that bulls keep shying away from testing, even if they’ve remained active at supports, such as we saw with 1.3900 in late-October and 1.4000 last week.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

The 1.4151-1.4178 Zone

It was a year ago now that USD/CAD was pushing for a significant breakout. The 1.4000 handle is and has been a big spot in the range the pair built in over the past decade, and it had taken a few weeks for buyers to finally pose that break. At the time, we had the post-election backdrop and USD-strength had taken over in a very big way and when USD/CAD spiked, it was the 1.4178 level that held the highs.

In February, the pair had just reversed after a failed run above the 1.4500 level, even as it had set a fresh high. It was a chaotic backdrop for a normally calm pair (especially for a major FX pair), but it was the 1.4151 level that held the lows following that reversal, helping to set up a zone. When bears took over in April, they sliced below both the zone and the 1.4000 handle and didn’t really pause until the 1.3750 level brought a bounce (which then found resistance at 1.4000). But the importance of that price zone was clear and as we re-approach it nine months after it was last in-play, bulls have shown symptoms of stall ahead of the re-test.

Within that zone is even more reference, with the 50% mark of the 2025 major move plotted in between those prices, at 1.4167.

USD/CAD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Shorter-Term Strategy

At this point with the pair stalling so close to recent highs and then that resistance zone sitting just overhead, it can be a difficult backdrop to chase the move.

And from a shorter-term perspective, there’s even been a proclivity towards mean reversion, and I think that’s something traders can use in consideration of the longer-term bullish bias.

This sets up three possible support levels to work with, with the closes at 1.4068 as a price that’s held resistance multiple times already. Below that, we have the 38.2% Fibonacci retracement of this year’s major move, and then below that, the 1.4000 handle, which can now be justified as a higher-low provided that we see respect of last week’s swing low inside of the 1.3980 level.

If all three of those levels give way, we’re likely looking at some form of change in the backdrop and if the US Dollar is showing that degree of weakness, I still like setups in EUR/USD and GBP/USD a touch better.

USD/CAD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro