CAD Struggling as Technical Hurdles and Depressed Oil Prices Form Perfect Cocktail


Canadian Dollar, USDCAD and EURCAD Talking Points:

  • Technical Outlook: Neutral.
  • USDCAD Gains Traction Hitting 22-Month High with Technical Hurdles Ahead.
  • EURCAD Breaks Out of Two-Month-Old Range and Gains Momentum.

CAD and Oil: The Correlation of the Canadian Dollar and Oil Price

Canadian Dollar Outlook

The Bank of Canada (BOC) last week delivered its fourth outsized rate hike since March, with a further 75bp following July’s 100bp increase. According to the BOC, further easing in domestic demand is required to bring inflation below its target. The effort to front-load a rate hike did see the CAD enjoy some strength. Since then, we have seen the resumption of CAD weakness across the board with USD and Euro gaining. Given the FOMC meeting next week there is a strong possibility for some rest for the Canadian Dollar, if the Fed’s outlook is less robust than expected. Considering the changing sentiment and especially with the FOMC ahead, it is not wise to get married to any long-term bias. at this stage.

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USDCAD Daily Chart

USD/CAD Daily Chart

Source: TradingViewprepared by Zain Vawda

From a technical perspective, USDCAD has been on a steady uptrend since its YTD low around April 5th (see chart). We have also broken out of an ascending channel we have been trading in since September 2021 as the dollar index continues its advance. Last week’s candle close gave hope to sellers of the pair as we closed as a bearish engulfing candle before rebounding. 50 SMAtaking the highs out this week and pushing forward.

On a daily time frame, price action may indicate further improvement as we have created higher highs and higher lows since the August 11 low around 1.27300. We have a significant area of ​​resistance another 100 pips away, resting around the 134,000 level. The RSI is currently in overbought territory which could mean we have to pull back soon, supporting this is the fact that we just made a new high. The MAs is currently well below the current price while the gradient slope indicates strong bullish momentum. There is a strong chance that we will see higher prices enter the FOMC meeting next week, which could provide a catalyst for the pair, either to push ahead with a more hawkish Fed or some respite for the CAD on a more bearish outlook.

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of customers is net short

Change into




Every day 3% -9% -6%
Every week -26% 58% 15%

Daily Chart of EURCAD

Daily Chart of EUR/CAD

Source: TradingView, prepared by Zain Vawda

From a technical perspective, EURCAD is a steady decline since the year started before bottoming around the 1.28760 area. Since then we have had a significant rise of around 380 odd pips with the August monthly candle closing as hammer candlestick. In the weekly time frame, we are on track for our third straight week of gains even if the previous two were unconvincing, the current week looks set to close as hammer candlestick as well as closing above the key 1.32000 area.

The daily time frame gives an indication of price action at work because we were constantly moving higher creating higher highs and higher lows. The moving averages provided support as we have a ladder higher with the price currently above the 20 and 50 SMA. The gradients of these two MAs are now pointing to the top with signs that they are also looking for a crossover. The 100 SMA rests around 40 pips above the current price, which should provide some resistance and could see us retreat slightly to the preferred support area at 1.32000 while a deeper pullback to the 20 and 50 SMA cannot be ruled out. Any pullback may provide longs with a better risk-reward opportunity as a major resistance level rests at the 1.34000 area.

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