USD/CAD Reverses Near Resistance, Will it Continue Lower?

USD/CAD Outlook:

• USD/CAD has surged to start the year, rallying from 1.2976 in January to 1.3329 earlier this week
• The formation of an evening star on Monday highlighted the risk of a reversal lower which materialized on Tuesday and Wednesday and could threaten to erase further bullish progress
• That being said,IG Client Sentiment Data reveals retail traders remain overwhelmingly short USD/CAD, a potential sign of further bullishness

Canadian Dollar Price Forecast

USD/CAD staged a remarkable rally to start the year, surging from 1.2976 in early January to 1.3329 earlier this week before posting an evening star formation on Monday and subsequently declining since. While the initial reaction was confident at first, a long lower wick on Wednesday could hint at waning bearish interest heading into the second half of the week as support beneath comes into view.

USD/CAD Price Chart: Daily Time Frame (January 2019 – February 2020)

To that end, the Dollar’s January rally allowed USD/CAD to recapture the 200-day moving average and a series of technical levels around 1.32 which should lend assistance if bearishness continues. Consequently, a deeper pullback would allow the pair to consolidate further which could be productive for longer-term gains. Still, IG Client Sentiment Data suggests USD/CAD may continue higher still as the vast majority of retail traders trading the pair through IG are net-short, a fact we typically view to be bullish.

Therefore, if a continuation higher does emerge, a daily close above horizontal resistance around 1.3340 would be the first requirement in a larger rally since the level has stalled previous attempts throughout the last six months. Secondary resistance is not far off, resting around the 1.3373 area which could make an extension higher difficult. In the meantime, follow @PeterHanksFX on Twitter for updates and sign up for my webinar below for a deeper look at USD/CAD using sentiment data.

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–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX