USD/CAD Forecast: USD Continues to Climb Against Loonie

Christopher Lewis

If the Federal Reserve continues to profess the need to keep monetary policy loose, then it is likely that this pair will roll over as a result.

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The US dollar rallied a bit during the trading session on Tuesday to reach towards the 1.22 handle. That is an area that previously had been resistance, so it does make sense that we would see resistance there as well. Furthermore, we have the 50-day EMA flattening out in that general vicinity. The 50-day EMA is an indicator that attracts a lot of attention, so I think that if we fail in this area, it could be an excellent shorting opportunity. This will be especially interesting, as the Federal Reserve has a statement coming out late during the session on Wednesday.

If the Federal Reserve continues to profess the need to keep monetary policy loose, then it is likely that this pair will roll over as a result. The 1.20 handle underneath is rather supportive and a large, round, psychologically significant figure, so it does make sense that we have bounced from there. If we were to break down below the 1.20 handle, then we could see a significant breakdown from there to reach towards the 1.18 level. Breaking down below that level could then have the market looking towards the 1.10 level.

To the upside, if we do get some type of surprise from the Federal Reserve, then it is possible that we could go looking towards the 1.24 handle, as it is the next major resistance barrier. That is an area that previously had been massive support, so I would expect a lot of market memory to come into the picture, causing more selling. We are very much in a significant downtrend, and I do not see a change of that happening anytime soon. If we were to break above the 200-day EMA, then the market could change the overall trend, but I do not see that happening anytime soon either. After all, the Federal Reserve has been very loose with monetary policy for some time, and I think that will continue to be the case. In fact, I do not see a scenario in which we see the Federal Reserve change, so I think a lot of what we have seen leading up to this point is probably a bit of short covering, especially as the Canadian dollar has seen a bit of divergence from the oil markets, which are so bullish.

USD/CAD

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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