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USD/CAD has been consolidating for the past month after the initial pandemic shock back in March.

But the currency pair just broke below the support area on strong momentum…is this a new leg lower?

USD/CAD Consolidation Break?

USD/CAD 4-Hour Forex Chart
USD/CAD 4-Hour Forex Chart

On the four-hour chart above of USD/CAD, we can see the pair has been tightening up since mid-April, forming lower ‘highs’ from 1.4200 – 1.400 and higher ‘lows’ from around 1.3900 – 1.3950.

But over the last trading session, the pair finally broke below the strong support area around 1.3900, likely on the recent positive global risk sentiment supported by economies opening back up and optimism growing that we will see a vaccine for the coronavirus sooner rather than later.

Oil has rallied as well to likely lift the Loonie on expectations demand will recover. Will this last?

I don’t know, of course, but it’s hard for me to see anything derailing that over the next week or so.

Economic data and business sentiment don’t seem to matter at this time, so it’s likely a spike in coronavirus cases and/or a setback in coronavirus vaccine/therapy development that could shift traders’ focus away from the potential economic recovery.

So, I’m bearish on USD/CAD for now, but I’m not going to drop orders on the pair quite yet. At the end of this week, we’ll get the latest GDP updates from both the U.S. and Canada, which could shift sentiment on the pair.

We’ve also got the latest monetary policy statement from the Bank of Canada next week, and based on recent rhetoric from BOC Governor Poloz (Risks to Canada’s economic outlook are overblown, Stephen Poloz says) that could be a bullish event for the Loonie.

For now, I’m watching for the pair to bounce back higher as this move lower may be a bit overdone (Stochastic showing oversold conditions), and if the market retests the consolidation area and the upcoming data lines up with my bearish bias, I’ll look to drop sell orders in then.

So, no trade orders for now as I wait to see how the data and market sentiment plays out, but if I do take action, I’ll be sure to post an update.

Stay tuned for that and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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