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USD/CAD FORECAST:
- The Canadian dollar weakens on Wednesday as risk-off mood undermines high-beta currencies
- The USD/CAD bounces off trendline support, with prices eyeing an important technical resistance
- Market sentiment will dictate moves over the coming days
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The Canadian dollar weakened modestly on Wednesday, undermined by risk-off mood and a stronger appetite for defensive assets. In early afternoon trading, USD/CAD was up about 0.25% to 1.3473 after failing to breach an ascending trendline that has guided the pair higher since June of 2022.
U.S. stocks and bonds were underwater following disappointing U.S. macro reports, including ADP and non-manufacturing PMI. For context, ISM services slowed sharply in March, dropping to 51.2 versus 54.4 expected – a sign that demand conditions are rapidly deteriorating.
While weakening economic activity may create headwinds for the U.S. dollar by ushering in a dovish monetary policy, it can have the opposite effect at times if market turbulence triggers bouts of flight-to-safety.
In the current context, sentiment will be key for high-beta currencies, such as the Canadian dollar. That said, if the market tone worsens, USD/CAD could shine as traders cut their exposure to riskier plays. Conversely, if the mood stabilizes, the pair will have fewer obstacles to resuming its decline.
Turning to technical analysis, the daily chart below shows that USD/CAD is hovering above trendline support after an unsuccessful bearish breakout attempt. If this dynamic floor holds, prices could rebound towards resistance at 1.3500, followed 1.3550, near the 50-day simple moving average.
On the flip side, if bears regained decisive control of the market in the coming sessions and push the pair below 1.3420, sellers could launch an attack on the 200-day simple moving average in short order. On further weakness, the focus shifts to 1.3350 and 1.3220 thereafter.
| Change in | Longs | Shorts | OI |
| Daily | 1% | -1% | 0% |
| Weekly | 26% | -15% | 8% |
USD/CAD TECHNICAL ANALYSIS
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