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With a forex calendar bare of major economic catalysts, USD/CAD is one of the few pairs that could see some action with top tier events from both the U.S. and Canada ahead. Will they keep the bullish run going in USD/CAD?

USD/CAD Uptrend Retracement Ahead?

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

USD/CAD has been very kind to the bulls as of late, likely on the recent focus of rising COVID-19 cases around the globe sparking fears of lockdowns and slowing economic activity, and risk aversion market behavior.

This environment also of course has a negative affect on oil prices (down -9.6% in the past month), and given that oil is Canada’s top export, it’s no surprise the Loonie has been falling as well. Since the Omicron variant started popping up on the news wires near the end of November, USD/CAD is up over 260 pips (+2.10%).

With little sign of the Omicron variant even beginning to slow down, these market fears may persist in the medium term. But in the short-term there may be catalysts that could take USD/CAD traders’ focus away this week, potentially creating longer-term setups.

On Thursday, we’ll get a sizeable chunk of economic updates from the U.S. and Canada, with the most notable being the latest GDP data from Canada and the latest Core PCE price index data from the U.S. (the Federal Reserve’s preferred tool for measuring consumer inflation).

Expectations are that Canada will post improvement in October over the 0.1% m/m rise in September, and the November Core PCE index number will likely grow at the same pace as the 0.4% previous read in October.

If this scenario plays out, we could see a dip in USD/CAD in the short-term, which may get some help from technical traders. On the four hour chart above, we can see short-term bearish technical arguments as stochastic is not only showing overbought conditions, but also diverging with price action. This is also notable given the formation is occurring at a major psychological area (the 1.3000 handle).

So, if you’re a short-term trader, there may be an opportunity for quick counter trend pips this week around 1.3000, but keep in mind that the trend is still to the upside and the broad environment is generally risk-off.

For the swing and longer-term players, if a dip does materialize, then watch out for a retest of the November resistance area around 1.2450 – 1.2830. If the market retraces there, then longer-term trend traders and fundamental bulls may hop back in long to trade the net negative risk environment we’re currently seeing, at least until we get fresh catalysts that show Omicron as less of a threat to the global economy going forward.

What do you guys think? Is USD/CAD due for a dip or will USD/CAD bulls cut down the 1.3000 handle like a hot knife through butter? 

Let me know in the comments below, 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.