Canadian Dollar Technical Forecast: USD/CAD Primed for Fed, BoC


Canadian Dollar Technical Forecast: Bullish

  • The Bank of Canada is expected to hike rates next week on the morning of the FOMC rate decision, making for an especially busy backdrop in USD/CAD.
  • USD/CAD put in a bounce this week after a month-long sell-off drove the pair to fresh lows. But a significant zone of resistance lurks overhead, and bulls are going to need to trade through this zone before topside strategies can become favorable in USD/CAD again.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

USD/CAD may have finally found some support after the sell-off that started a month ago sent prices below a number of key supports. In late-December, the pair was vying for a 1.3000 test for the first time in the calendar year of 2021 before sellers showed up at resistance around 1.2950. After a pause in the 2622-2672 support zone, sellers continued to push last week, eventually producing a fresh two-month-low in the pair.

Rising oil prices have certainly been a driver. But, Canadian economic policy has also played a role and this will be in the spotlight next Wednesday as the BoC holds a rate decision on the morning of the FOMC rate decision. This should make for an especially busy Wednesday outlay with rate decisions from each representative Central Bank.

In USD/CAD, this week was marked by some pretty strident defense of support at 1.2450, with an assist from the 1.2500 psychological level. Prices dipped below the big fig last Thursday and despite multiple tests over the past week, sellers were unable to make any ground below the 1.2450 level that’s currently functioning as the two-month-low in the pair.

This doesn’t mean that sellers are done, however, as a key zone lurks just above current price action and it’s the same zone that was in-play multiple times last year, spanning from Fibonacci levels at 1.2622 and 1.2672. In the middle of that zone is the 38.2% retracement of the recent down-trend, and this can add a bit more perspective to the picture, allowing for bearish strategies should resistance show in this zone.

USD/CAD Four-Hour Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

BoC v/s Fed – First Mover Advantage

There’s a strong chance of a rate hike out of the BoC next week while few, if any expect a similar move from the FOMC. For that, it looks like we’ll be waiting until March. In Canada, inflation similarly remains elevated albeit inside of the recent levels seen in the U.S.. Just last week Canadian inflation printed at 4.8% and this is further playing into rate hike odds out of the BoC.

The problem here is one of expectations, and with markets expecting a hike out of the BoC and no similar move out of the Fed, this can set the stage for a bullish move in the USD/CAD pair if the BoC disappoints, as they did in December.

For that – traders can look to bullish breaks of the 2672 level, which currently marks the top side of the resistance zone looked at above and that price is confluent with the bearish trendline taken from December and January swing highs.

USD/CAD Daily Price Chart

Canadian Dollar Technical Forecast: USD/CAD Primed for Fed, BoC

Chart prepared by James Stanley; USDCAD on Tradingview

The forecast for next week will be set to bullish for the Canadian Dollar. However, given the intense focus that’ll likely be paid to both the US and Canadian Dollar around Wednesday’s rate decisions, traders may want to point that CAD-focus elsewhere.

One market of note that may be accommodative for that theme is CAD/JPY, which is nearing a major spot of support around the 90 psychological level. The pair broke out of a falling wedge to start the year and after a strong run in the first couple weeks of 2022 trade, CAD/JPY has pulled back and there remains support potential around prior resistance. I’m marking the zone from 90 up to the Fibonacci level at 90.25, and this would need to see a support test confirmed by a four-hour or daily candle close at that spot to keep the door open on the long side.

CAD/JPY Daily Price Chart

Canadian Dollar Technical Forecast: USD/CAD Primed for Fed, BoC

Chart prepared by James Stanley; CADJPY on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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