CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

USDCAD Technical outlook Is it time for a longterm change in trend

January 20, 2021 10:44 AM

USD/CAD Technical outlook: Is it time for a long-term change in trend?

As with any currency pair, there are an abundance of factors to consider when trying to forecast price.   Those factors can be broken down into technical factors and fundamental factors.   On the technical side, price action is paramount.  However, for USD/CAD, one must also include the correlation between USD/CAD and crude oil when considering price movement.  Crude oil is a key export for the Canadian economy; therefore, it is important that we also consider the price movement of USD/CAD.

USD/CAD

On a weekly timeframe, USD/CAD has been moving lower since its pandemic highs at 1.4667 in March 2020.  The downtrend is still intact; however, the pair may be ready for a bounce.  Since late September 2020, USD/CAD has been forming a descending wedge, and is currently nearing the apex.  A descending wedge would suggest a breakout to the topside, with the target being a complete 100% retracement of the wedge, near 1.3410.  In addition, price is hovering around the support area of the 161.8% Fibonacci extension from the lows during the week of August 31st to the highs during the week of September 21st.   

Source: Tradingview, City Index

The trend is still lower, however if USD/CAD breaks higher out of the descending wedge, there will be strong resistance on its way back to target.  A downward sloping trendline and horizontal resistance converge near 1.2990 and the 200 Week moving average crosses at 1.3136.  Major support isn’t until 1.2061, however this is horizontal support below near 1.2547.

Also notice the correlation coefficient at the bottom of the chart. Dating back to late 2018, most of the time crude oil and USD/CAD have had a negative correlation, meaning the 2 assets have been moving in opposite directions. (This means that the Canadian Dollar and Crude Oil prices have been moving in the same direction.)  The current correlation coefficient is -0.91.  For reference, a correlation coefficient of -1.00 means that the 2 assets are perfectly correlated and move in opposite directions on a one to one basis 100% of the time.  The current correlation coefficient of -0.91 indicates a strong negative correlation!

WTI

As mentioned, its important to look at crude oil when discussing the Canadian Dollar.  West Texas Oil (WTI) is right in the middle of a strong resistance zone between 50.50 and 54.40.  This area has acted an important “decision zone” for traders dating back to 2014.  In addition, the 61.8% Fibonacci retracement from the week of October 2018 highs to the March 2020 lows crosses just below at 51.86.  The 200-week moving average also crosses in this zone near 52.96.  Just above, there is a downward sloping trendline from the October 2018 highs, which crosses near 57.00.  And although the RSI is not in overbought conditions yet, its pretty close at 68.81. 

Source: Tradingview, City Index

Given the strong correlation between WTI and USD/CAD, IF this resistance zone can hold and WTI pulls back towards horizontal support at 47.20, then it could mean a weaker Canadian Dollar as well.  Therefore, a weaker price on a weekly chart in crude oil would suggest a stronger USD/CAD on the longer-term timeframe!

For a technical insight on USD/JPY, click here

Learn more about forex trading opportunities.


StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024