November 24, 2022
  • November 24, 2022

Technicals point to renewed downside pressure for the Loonie

By on October 8, 2022 0

Talking points on the Canadian dollar, USD/CAD and EUR/CAD:

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Canadian Dollar Outlook

Strong jobs numbers came out of Canada on Friday in what will be seen as vindication for Bank of Canada (BOC) Governor Tiff Macklem. During the week, the BoC governor reiterated his belief that further rate hikes will be needed despite the recent slowdown in inflation. Governor Macklem said there is still a long way to go because inflation will not go away on its own. He warned that price pressures risk taking root. These comments from Macklem suggest that the Bank of Canada will not be left behind if the US Federal Reserve continues its aggressive march. A continued rise in oil prices could further strengthen the Canadian dollar in the coming week and may be worth watching.

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Technical outlook

USDCAD Daily chart

Source: TradingView, prepared by Zain Vawda

From a technical standpoint, USD/CAD has retraced about 300 pips from its last year-to-date high around September 30 (see chart). Price action on the daily timeframe was indecisive to say the least as we cleared the previous upper low tipping point (indicating a change in bearish pattern) before tapping into the psychological level of 1.3500. Subsequently, we had a bullish engulfing daily close before continuing, a sign that the bulls may be regaining control.

Overall, the upward rally to year-to-date highs has been aggressive, with the 50 and 100-SMA lagging well behind current price. A push down remains a possibility if price stays below the year-to-date high with a retest of the 50 and 100-SMA on the charts. Friday’s weekly candle close remains key, with a candle close like a hangman’s candlestick indicating further downside potential in the week ahead. There remains a host of confluences in play around the 1.3150-1.3300 area which lines up with the 78.6% fib level, 50-SMA as well as the top of the ascending channel.

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Daily 5% 9% 8%
Weekly 9% 4% 6%

EURCAD Daily Chart

Source: TradingView, prepared by Zain Vawda

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From a technical standpoint, the EURCAD has been on a tear since bottoming out around the 1.28760 area. We have since seen a major bullish rally of around 680 pips, with the September monthly candle closing as a hammer candlestick and completing an inverted morning star candlestick pattern. The current weekly candle presents a hurdle, however, as it seems likely that we will see a bearish inside bar candle close, which would indicate further downside potential in the week ahead.

The daily timeframe provides a wonderful indication of the price action at work, as we have been steadily rising, creating higher highs and higher lows. The moving averages provided support as we moved up the stairs with price currently above the 20, 50 and 100-SMA. The price action on the daily indicates that a pullback may be in store for the pair with the psychological level of 1.3200 right in the middle of the moving averages providing an additional layer of confluence. On the other hand, a daily candle break and close below the 1.3150 area will cause the bullish pattern to be invalidated, with the bears potentially taking control.

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— Written by Zain Vawda for

Contact and follow Zain on Twitter: @zvawda

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