Canadian Dollar Short-term Outlook: USD/CAD Rally Hits Major Resistance

Canadian Dollar Technical Outlook: USD/CAD Short-term Trade Levels

• USD/CAD has rallied more than 2.5% from the May lows after breaking above a major pivot zone.
• Price is now testing a key resistance area that has capped advances since the start of the year
• A breakout above resistance would mark uptrend resumption while failure could trigger a pullback within the broader structure
• Major event risk tomorrow with U.S. NFPs & Canada Employment on tap
• Resistance 1.3916/42 (key), 1.3978/85, 1.4035- Support 1.3870, 1.3798-1.3813 (key), 1.3725/33

USD/CAD has extended its recovery from the May lows and is now testing a major resistance zone that could determine the next phase of the advance. The breakout above former resistance has improved the broader technical outlook, but the rally is now confronting a significant technical hurdle at the upper bounds of the May uptrend. The focus in the sessions ahead is on whether buyers can force a breakout and sustain the recovery or if this zone once again caps gains and sparks a pullback. Battle lines drawn on the USD/CAD short-term technical charts heading into key jobs data tomorrow.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Loonie setup and more. Join live on Monday’s at 8:30am EST.

Canadian Dollar Price Chart – USD/CAD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/CAD on TradingView

Technical Outlook: In last month’s Canadian Dollar Short-term Outlook, we noted that the USD/CAD had, “set the weekly opening range just above pivotal support- look for the breakout to offer guidance here. From a trading standpoint, losses would need to be limited to 1.3692 IF price is heading higher on this stretch with a close above 1.3813 needed to fuel the next major leg of the advance.” Price registered an intraday low at 1.3731 later that day before rebounding sharply with the subsequent rally extending more than 2.7% off the May lows.

The rally is testing confluent resistance today at the upper bounds of the May uptrend and while the broader outlook remains constructive, the immediate advance may be vulnerable while below this key pivot zone. The focus is on possible inflection off this mark with major event risk on tap tomorrow.

Canadian Dollar Price Chart – USD/CAD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/CAD on TradingView

Notes: A closer look at Canadian Dollar price action shows USD/CAD continuing to trade within the confines of the ascending pitchfork we have been tracking off the May lows. Key resistance now converges on the median-line at 1.3916/42- a region defined by the yearly high-day close (HDC), the January close high, the September HDC, and the October low-day close (LDC). A topside breach / daily close above this pivot zone is needed to mark uptrend resumption with subsequent resistance objectives eyed at the 2022 high and the 76.4% retracement of the November decline at 1.3978/85 and the 100% extension of the broader January advance at 1.4035.

Look for initial support near the May high at 1.3870 with near-term bullish invalidation now raised to 1.3798-1.3813 – a region defined by the monthly open, the 61.8% retracement of the late-March decline, and the 200-day moving average. Losses below this zone would be needed to suggest a more significant high is place near-term and threaten a larger correction back towards the yearly open around 1.3725/33. Look for a larger reaction there IF reached with a close below needed to put the bears back firmly in control.

 

Bottom line: USD/CAD has extended into pivotal resistance with the June opening range taking shape just below- risk for inflection off this zone near-term. From a trading standpoint, losses would need to be limited to 1.3798 IF price is heading higher on this stretch with a close above 1.3942 needed to fuel the next major leg of the advance.

Keep in mind we get the release of key labor market data from both the U.S. and Canada tomorrow with May Non-Farm Payrolls and Canada employment released at 8:30 am EST. Stay nimble into the release and watch the weekly close here for guidance. Review my latest Canadian Dollar Weekly Forecast for a closer look at the longer-term USD/CAD technical trade levels.

Key USD/CAD Economic Data Releases

Economic Calendar - latest economic developments and upcoming event risk.

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Written by Michael Boutros, Senior Technical Strategist

Follow Michael on X @MBForex