It’s been a green week for USD/CAD but the bulk of that gain posted on Monday, after which prices spent the rest of the week in a rather tight range. But when compared against the sell-off in DXY, that actually looks somewhat positive for bulls. Another route to take could be to push that CAD-weakness against another currency that’s shown greater relative strength than the USD, such as the Euro or British Pound.
USD/CAD bulls have continued to push, even as DXY snapped back over the past week. This highlights the deduction of Canadian Dollar weakness which illustrates an interesting wrinkle of the spot FX market. Since currencies are the foundation for the global economy, the only way to value a currency is with another currency. So when we see something like we saw over the past week, with USD/CAD moving up even as DXY sold-off, that shows that the Canadian Dollar was even weaker than the USD.
This has been one of the main reasons that I’ve been tracking the pair for scenarios of USD-strength for the past couple of months. Even as DXY was coursing down to fresh multi-year lows on the first day of Q3 or at the Fed’s rate cut announcement, USD/CAD was holding higher-lows while retaining bullish structure.
And even this week, bulls held the pair above the psychologically important 1.4000 level, which further points to that potential for strength to continue.
USD/CAD Four-Hour Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/CAD
Given how tight the range was in the latter-half of the week, a step back to the daily or longer chart can provide some much needed context.
Last week saw defense of the 1.4000 level but given the trepidation from bulls at resistance or near highs, there could be a heavy lean on the long side of the pair from a positioning perspective. And also given that resistance reaction at 1.4000 back in May, I think a more emphatic show of support at 1.4000 could make the prospect of bullish continuation as more attractive.
This would likely need to come along with a larger show of USD-weakness, but going to what I said at the outset of this article, there could be more attractive venues for CAD-weakness in that scenario that I’ll look at a little lower.
In the major of USD/CAD, it’s that 1.3981-1.4000 area that stands out for higher-low support potential, and a test there opens the door for a continuation move up to the 1.4151-1.4178 zone.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/CAD
It’s major pairs that get most of the attention, and there’s a litany of reasons for that. But, for the FX trader, this has some important dynamics, such as the importance of major psychological levels in those pairs, such as we’ve seen with the 1.4000 handle in USD/CAD.
But this also highlights possible opportunity in cross pairs such as EUR/CAD, where a trader can take the recent round of Euro strength and mesh that up with CAD-weakness to work with a trend that just set a fresh 16-year high.
EUR/CAD Monthly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
This isn’t to say that psychological levels play no role in price action for cross pairs, and we can see the 1.6000 level in-play on EUR/CAD below, as it helped to stall the advance for a couple of months before bulls were ultimately able to climb above and make a run at the 1.6500 level.
From the daily chart below, we can focus in on that recent trend to pick off a few levels of note for higher-low support potential. There were multiple resistance responses at 1.6360, so that becomes a nearby area and if that holds lows and elicits a reaction, that would be an aggressive show from bulls. Below that is a Fibonacci level at 1.6231 and a hold there could even be considered as a higher-low above the prior swing-low. And then below that is the 1.6106 level, which I’m considering as an ‘s3’ level of support on the daily chart for the EUR/CAD pair.
EUR/CAD Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
GBP/CAD
GBP/CAD has similarly jumped to a fresh high although it’s a more modest nine-year high here. The recent trend has been rather tight, albeit consistent, so there remains a bullish bias here, as well.
The weekly chart below illustrates this tightening in price action that’s been building over the past few years. This is a rising wedge which is often approached with aim of bearish reversal, but given proximity and length of build, this isn’t a current concern, although it can fast come back into the equation if we do see a run of Canadian Dollar strength in the near-term.
My opinion of that is that if or when USD/CAD re-tests that 1.4151-1.4178 resistance zone, there could be a case for the decade-long range to come back into play, and if that happens, Canadian Dollar strength could be pronounced, similar to what we saw back in 2022 and that could begin to fill in the longer-term rising wedge here. But, for now, I consider that a less of a concern.
GBP/CAD Weekly Chart
Chart prepared by James Stanley; data derived from Tradingview
The daily chart below illustrates just how fresh this breakout is, and this would be a challenge to chase. But there were multiple shows of resistance at 1.8779 until the breakout took hold last week and this shows a prime area for bulls to come in to defend the move, if given the chance.
Below that, it’s 1.8367 that buyers need to defend to retain the higher-high and low sequencing that led to the breakout this week, and a break-below 1.8561 highlights a possible break of the longer-term rising wedge support.
GBP/CAD Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
