USD/CAD Forecast: USD Pulls Back to Support Against CAD

The US dollar has been a bit of a wrecking ball against everything else, so it is difficult to imagine that the Canadian dollar is going to be any different.

The US dollar pulled back a bit on Wednesday to reach down towards the 1.29 level. That is an area that has previously been significant resistance, and now we have pulled back to show signs of market memory. The 1.29 level is an area that has been noisy more than once, and it does suggest that we are more likely than not going to see a little bit of value hunting in the general vicinity.

The US dollar will continue to strengthen over the longer term, as the CPI number suggests that there is a lot of inflation. The one thing that does work for the Canadian dollar is the oil markets, which were very strong during the day. Having said that, the US dollar is by far the strongest major currency out there, so it makes quite a bit of sense that the momentum will continue to push the market to the upside.

If the USD/CAD pair can break above the 1.30 level on a daily close, it is likely that momentum will continue to come into this market and send this pair much higher. We have just broken out of a major consolidation area, and it does suggest that we are more likely than not going to continue to see this market try to go much higher. For what it is worth, the rectangle measures for a 400 PIP move, suggesting that this pair could find an exchange rate of C$1.34 before it is all said and done.

Keep in mind that this pair does tend to be very choppy, and it does have a lot of outside influence due to cross-border transactions, crude oil, and the divergence of central bank policy. With the Federal Reserve looking very likely to have to stay hawkish, that should give a little bit of a boost to the US dollar over the longer term, but at this point we had been just a bit overbought, so it does make sense that we need to pull back to find more momentum. The US dollar has been a bit of a wrecking ball against everything else, so it is difficult to imagine that the Canadian dollar is going to be any different.

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.