CANADIAN DOLLAR OUTLOOK: USD/CAD BULLS DEFEND 1.3000-PRICE LEVEL
- USD/CAD bears have struggled to maintain selling pressure over the last two trading sessions
- USD/CAD price action is ricocheting higher off a critical technical support level around 1.3000
- Canadian Dollar strength is simmering even though crude oil prices continue to gain ground
Canadian Dollar bulls seem to be taking a breather and easing off the bid at the moment. This follows USD/CAD price action attempting to stabilize and claw back recent downside since the sharp 400-pip plunge to start the month. The relief bounce currently being staged by USD/CAD appears to coincide with rebound off technical support provided by the 1.3000-price level. This critical zone of technical confluence around 1.3000 is underpinned by the 2019 yearly closing level as well as the swing low printed on 31 August.
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USD/CAD PRICE CHART: DAILY TIME FRAME (15 MAY TO 11 NOV 2020)
USD/CAD briefly pierced this area of buoyancy earlier this week on an intraday basis as the Canadian Dollar surged with crude oil prices, but the move lacked follow-through and correspondingly looks to have formed a hammer candlestick. A hammer candlestick at the end of a downtrend can indicate a bullish reversal lurks on the horizon. That said, this could open up the door for USD/CAD to extend its rebound attempt as Canadian Dollar strength fizzles out after failing to take out the key technical barrier around the 1.3000-price level. This brings support-turned-resistance highlighted by last month’s lows into focus as a potential topside objective before the 1.3200-handle and 100-day simple moving average are considered.
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To that end, a pullback in crude oil prices from current levels could help facilitate the move higher by USD/CAD. This is considering the strong positive correlation between crude oil and the Canadian Dollar typically observed. On the other hand, with market sentiment improving and the reflation trade gaining traction, which largely follows evaporating US election fears and encouraging COVID-19 vaccine headlines, crude oil and the Canadian Dollar could remain in demand more broadly. This might present headwinds to USD/CAD price action in turn, particularly if trader risk appetite keeps the US Dollar bogged down given its posturing as a top safe-haven currency.
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