USD/CAD Price Forecast Q4 2020: Is the Uptrend Going to Resume Soon?
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- Technical Analysis
- The price has left the 20 SMA behind since October
Trading in the [[USD/CAD]] was bullish during the first half of the past decade, but since 2016 this pair has been consolidating sideways. However, lows have been getting higher during this period, which indicates buying pressure in the long term. In Q1 of this year, buyers had a decent attempt at trying to resume the long-term bullish trend, pushing the price 17 cents higher, with some help from the coronavirus breakout as well, which gave the USD a massive push higher.
But the reversal in the USD, which turned massively bearish, sent this pair back down, and it lost all the gains of Q1. But the decline stopped at the 100 SMA on the monthly chart in September, which has been acting as support since 2017, and we have seen a bounce in the last two months. This suggests that the pullback is over and the bullish reversal is coming, but it remains to be seen whether buyers will be able to break above the range of the last 4 to 5 years.
Current USD/CAD Price: $
Recent Changes in the USD/CAD Price
|Period||Change ($)||Change %|
|30 Days||-$ 0.026||-1.9%|
|6 Months||–$ 0.195||-13.8%|
|1 Year||–$ 0.010||–1.0%
|5 Years||–$ 0.022||-1.6%|
|Since 2000||-$ 0.140||-9.7%|
Factors Affecting the USD/CAD
As with every forex pair, there are two sides to this coin when analyzing it. The USD is surely affected by fundamentals, which look positive right now, apart from the coronavirus issue. But restrictions there are light, compared to Canada which has closed certain services since early October. Crude oil is an important factor for the CAD, which has benefited from it, but the future is not co certain. The FED is not hiking interest rates soon, while the BOC might ease further. The technical analysis, which we will cover in-depth below, also points up for this pair, so the future looks bullish for the USD/CAD. Wed have had quite a few forex signals in this pair during this year.
|USD/CAD Forecast Q4 2020: 1.35||USD/CAD Forecast 1 Year: 1.40||USD/CAD Forecast 3 Years: 1.40-45|
|Price Drivers: Post US elections, Risk sentiment, Oil price, Covid-19||Price Drivers: Global politics, Both Economies, Global economy, Technical analysis||Price Drivers: Oil price, Fundamentals in US and Canada, Global politics|
The Canadian Dollar Price Prediction for the Next 5 Years
Will the USD Bullish Reversal Continue After the Elections?
The US Dollar was on a bullish trend for years, with the US economy growing at a decent pace, and it surged initially when the coronavirus broke out, but it has turned quite bearish since March, hence the reversal down in the USD/CAD, from 1.4670 to 1.30, by the end of August.
However the USD has reversed in the last week leading up to the US presidential elections, and the odds are that it might continue to climb higher after the elections, despite who wins. Nancy Pelosi is against raising corporate taxes, as Joe Biden mentioned before, which will be positive for the USD if he wins. Also, after comments from certain republicans, chances are high for a skinny government fiscal package. The elections which we covered in our economic calendar, are heading towards the next phase now.
Some economists predict that the FED is likely to stay on hold for a long time, but if there is a new wave of optimism after the elections, the economy will boom further, so I don’t agree with them. This means that the USD will continue its bullish reversal of the previous week and probably resume the decade-long bullish trend.
Canadian Economy Heading for Another Recession?
The US economy doesn’t seem much affected by the coronavirus anymore, but in Canada we have seen restrictions increasing in recent weeks, with bars, restaurants etc. shutting down again, which came after a weak rebound in summer. This will take its toll on the consumer sentiment, which will translate into a weaker economy.
Crude oil has been helping the CAD, as it has made a remarkable comeback since April, when US [[WTI]] tumbled to $ -37.50 and then climbed to $ 43.50 by the end of August. But, it turned bearish in September, and after consolidating for several weeks, it resumed the decline towards the end of October. This doesn’t help the CAD, and if the global economy turns softer again, due to coronavirus restrictions in winter, then the demand for oil will fall further, which will help the [[USD/CAD]] move higher.
The fundamentals were already showing a weakening of the economy in Canada in September, so the economy is likely to head into another recession. The winter is also coming, which is pretty harsh in Canada, and this will add further to the economic freeze. The Bank of Canada is pretty bearish, like most major central banks at this time, but unlike the FED, which will at least remain on hold, the BOC might even ease the monetary policy further. This also goes in favor of the USD/CAD bulls.
USD/CAD Technical Analysis – The Bounce off Moving Averages has Already Started
The 1.30 area is still holding as support for USD/CAD
In the early 2000s, the USD/CAD was trading at around 1.60, but that decade turned out to be quite bearish, with the price diving to 0.90. During the financial crisis in 2008-09 we saw a surge to 1.30s, but then the USD/CAD turned bearish again, falling below parity. The last decade started off bullishly for this pair, but the climb ended at around 1.47, and in the second half of the decade, we have mostly seen consolidation, although, the lows have been getting higher since 2017, when the 50 SMA (yellow) turned into support, pushing the lows up since then. At the top, the resistance at 1.47 remains though. In the last two months we have seen the price bounce off the 50 SMA, which indicates that the bearish move is over and buyers will take control in the coming months. The stochastic indicator also confirms this, since it is overbought and turning up now.
The 200 SMA is still holding for now, but let’s see if it lasts
On the weekly chart, the 50 SMA (yellow) and the 100 SMA (green) were providing support when the bullish trend was strong, then the 200 SMA (purple) took over when USD/CAD stopped making new highs. This moving average held as support in the first week of September, after the bearish trend since March, and then again in October. This suggests that the buying pressure is strong down at the 20 SMA, which stands at around 1.30, and sellers might have given up now, after the second failed attempt to break below it. This points to a bullish reversal, which had already started in the last week of October. So, everything is pointing up for the USD/CAD, and we expect it to head to 1.40 and possibly 1.45, towards the end of 2020 and the beginning of 2021.