Canadian Dollar Rate Forecast Key Takeaways:

  • The ONE Thing:Canadian Dollar strengthens after China notes that Yuan willnotbe used as a weapon in trade wars and Markit Canada Manufacturing for June increasing to 57.1 from 56.2 last month.
  • The widening yield spread between US and CA 2-year sovereigns has narrowed in recent sessions as Poloz introducedtwo-way risk into the market by noting that the July 11 meeting is live for a rate hike causing markets to price in an 84% probability of a 25bp Bank of Canada hike.
  • Technical Outlook: USD/CAD found resistance at the 1.3386 level that aligns with the 76.4% retracement of the 2017 range. Support is currently at 1.3100, which aligns with the March high. A hold of 1.3100 and subsequent breakout should be the focus if the BoC isn’t able to appease the bulls with their rate announcement post-conference.

Key Technical Levels for Canadian Dollar Rate to US Dollar:

  • Resistance: C$1.3386 June 27 high (lowest level for CAD to USD in 12-months, 76.4% Fibo of May 2017 high)
  • Spot: C$1.3144
  • Support: C$1.3067 June5 high

Lower Highs on USD/CAD Turns Focus to Double-Top Target C$1.3265

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Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

Our last piece discussed the potential for short-term C$ strength on the back of a likely short-term double-top, whichis shown on the chart above. The double-top target of C$1.3143 has acted as support on the move, and now traders should be on the lookout for an upside break.

A break above the opening range high of July at 1.3225 and the double-top neckline at 1.3265 could signal an upside resumption toward the initial double-top level of 1.3387. A break of 1.3387 would favor a move toward higher targets of 1.36/38, which would also align with the trend of a widening premium of US front-end sovereign yields relative to CA front-end yields.

US-CA 2-Year Yield Spread Makes a case for Further USDCAD Strength

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Data source: Bloomberg

USD/CAD Daily Chart: Pair tests key support at 1.3140/1.3067

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Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

The chart above shows a short-term reversal of US Dollar strength against the Canadian Dollar to open July. However, the horizontal lineis drawn off the March high near 1.31,and the June 5 high at 1.3067 should curb the enthusiasm of CAD bulls.

A hold above this support point would favor a continuation of US Dollar strength as the 2-year yield premium looks set to expand further. An expansion would likely result fromthe Federal Reservethatis set to hike more times over the coming years than the Bank of Canada with the Bank of Canada more sensitive to Trade War and CNH outcomes than the US economy and the Federal Reserve.

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? OurDailyFX Forecasts for Q2 have a section for eachmajor currency, and we also offeran excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via ourpopular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators,and resources to help traders. For those looking for trading ideas, ourIG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Ourtrading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and ourreal-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, ourDailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re lookingat.

If you’re looking for educational information, ourNew to FX guide is there to help new(er) traders while ourTraits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written byTyler Yell, CMT

Tyler Yellis aChartered Market Technician.TylerprovidesTechnicalanalysisthat is powered by fundamental factorsonkey markets as well ast1radingeducational resources. Read more ofTyler’sTechnicalreportsvia his bio page.

Communicate withTylerand have your shout below by posting in the comments area. Feel free to include yourmarket viewsas well.

Discuss this market withTylerinthelive webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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