Canadian Dollar Short-term Outlook: USD/CAD Trump Rally Unravels

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

• USD/CAD Trump rally falters into technical resistance- down nearly 1% off multi-year high
• USD/CAD now testing initial support- risk for price inflection / larger correction
• Resistance 1.4085/89 (key), 1.4189-1.42, 1.4310- Support 1.3978/90, 1.3935, 1.3881/99 (key), 1.3825

The US Dollar has been on the defensive since the start of the week with USD/CAD down nearly 1% from the post-election highs. The decline takes price into the first line of defense for the bulls and a break below could fuel a larger correction within the broader uptrend. We’re looking for a possible inflection off this key range in the days ahead. Battle lines drawn on the USD/CAD short-term technical charts.

Canadian Dollar Price Chart – USD/CAD Daily

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

Technical Outlook: In my last Canadian Dollar Short-term Outlook we noted that USD/CAD was trading just below major resistance near 1.3978/90 on the heels of the US election and that the, “focus is on a breakout of the weekly opening-range- losses should be limited to the median-line IF USD/CAD is heading higher on this stretch with a close above the upper parallel needed to fuel the next major leg in price.”

USD/CAD held that range for nearly five days before finally breaking higher with a 2% rally off the monthly low exhausting last week at the 78.6% retracement of the 2020 decline at 1.4085. The bears are attempting to break back below that same pivot zone today at 1.3978/90- a region defined by the 2022 high and the 2020 March weekly-reversal close. Note that the 75% parallel converges on this zone today and a close below could threaten a larger pullback / suggest a that a mor significant near-term high was registered last week.

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 the USD/CAD continuing to trade within the confines of the ascending pitchfork we’ve been tracking off the September/October low. Note that a breach of the upper parallel last week failed at the 1.382% slope extension and keeps this formation in focus for now.

A break / close below this key pivot zone would expose the median / 100% extension around 1.3935 and the 2022 high-close / 2023 high at 1.3881/99- both areas of interest for possible downside exhaustion / price inflection IF reached. Broader bullish invalidation now raised to the August high-day close (HDC) at 1.3825. Losses below this threshold would suggest a larger trend reversal is underway.

A topside breach / daily close above the 78.6% retracement / weekly open at 1.4085/89 is needed to signal uptrend resumption. Subsequent resistance objectives at the 100% extension of the December advance at 1.4189-1.42 and the 61.8% extension of the broader 2021 advance at 1.4310.

Bottom line: A breakout of the monthly opening range is now testing initial support- looking for a reaction here. From a trading standpoint, a good zone to reduce portions of short-exposure / lower protective stops- rallies should be limited to the upper parallel (1.4060s) IF price is heading lower on this stretch with a close below 1.3978 needed to fuel the next leg lower.

Ultimately, losses would need to be limited to 1.3881 for the September uptrend to remain viable with a close above 1.4089 needed to mark uptrend resumption. Watch the weekly close here for guidance. Review my latest Canadian Dollar Weekly Technical Forecast for a closer look at the longer-term USD/CAD 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, Sr Technical Strategist

Follow Michael on X @MBForex