USD/CAD Forecast: USD Recovers Against Loonie on Higher Yields

Christopher Lewis

The shape of the candlestick is something worth paying attention to because this is a very strong looking reversal.

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The US dollar initially dipped below the 1.25 CAD level during the trading session on Thursday as oil spiked yet again. However, we have seen the market turn around to break back towards the 1.26 level again, completely wiping out the losses from the previous session. At this point, one of the biggest drivers seems to have been the 10 year note spiking to the 1.50% level. The Canadian dollar of course is still highly sensitive to the crude oil market, so the initial strengthening of the Loonie makes quite a bit of sense.

The market still has to deal with a pretty significant downtrend, so even if we do rally a bit from here, the reality is that we still have a lot of work to do before things change for a bigger move. For example, the 50 day EMA is sitting right at the downtrend line, which of course has been crucial more than once on the way down. With that being the case, I think we probably see some type of recovery, and then perhaps more selling of the US dollar. However, one thing that you need to pay attention to is the fact that the monthly chart suggests that the 1.25 level is going to continue to be crucial, so with that being the case I do expect a lot of noise in this general vicinity.

The shape of the candlestick is something worth paying attention to because this is a very strong looking reversal. This does not mean that we will go straight up in the air, and it does not necessarily mean that the trend will change but it is likely that we will see at least an attempt to make that happen. This means that the next couple of weeks will be very noisy, and quite frankly with the crude oil markets being overbought as they are, we could see some type of erratic action. That being said, I do think that caution is a better part of valor at this point, as we will see a lot of noise in this general vicinity. That being said, I think we are probably better off waiting for the next daily candlestick before putting money to work as we are at a major inflection point from the longer-term perspective.

USD/CAD Chart

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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