USD/CAD Technical Outlook

  • USD/CAD bounce off the 200-day has wedge break in play
  • Higher levels could be support by a stock market pullback

USD/CAD Technical Outlook: Higher Levels Appear Likely in Near-term

USD/CAD tagged the 200-day moving average last week, and is now trying to rise up out of a bullish-looking descending wedge. The initial turn off the 200-day has been a strong one, so momentum is already off to a good start.

The descending wedge isn’t the most robust variation, but nevertheless it is there. And, again, with price coming hard off the 200 the power of the pattern strengthens. Running over the most recent high will be key to strengthening a bullish outlook as price still remains pointed lower since the July high.

A breakout above 12985 is needed to get USD/CAD into open space back towards the July high of 13223. This might seem like a fair distance away to worry about, but USD/CAD is known for quickly garnering momentum once it gets going.

What is seen as a potential boon for higher levels is the fact that major U.S. indices, namely the S&P 500, are turning lower off the 200-day moving average and trend-line off the highs. The thinking heading into this week was that we could see at the very least a turn down in stocks in the near-term, if not looking out longer-term.

For much of the year, USD/CAD and the S&P 500 have held a strong inverse correlation, with it going to nearly -1 on occasions when looking at the 1-month time-frame. Recently it is has strengthened quite a bit as optimism returns to equities, but if we see risk sentiment sour the correlation between USD/CAD and the S&P 500 is almost certain to revert back to a much more negative value. The bottom line is that if stocks drop then USD/CAD should rise.

Tactically speaking, USD/CAD looks set to break out and so the trading bias is to the top-side. If, however, I see price turn down here soon then that bias will neutralize.

USD/CAD Daily Chart

usd/cad daily chart

USD/CAD Chart by TradingView

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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