USD/CAD Forecast: Post-BoC Breakdown Keeps RSI In Oversold Zone

With that said, key market trends may keep USD/CAD under pressure as the US Dollar continues to reflect an inverse relationship with investor confidence, and the Relative Strength Index (RSI) warns of a further decline in the exchange rate as the indicator holds below 30 and sits in oversold territory.




Image of USD/CAD rate daily chart

Source: Trading View

  • Keep in mind, the USD/CAD correction from the 2020 high (1.4667) managed to fill the price gap from March, with the decline in the exchange rate pushing the Relative Strength Index (RSI) into oversold territory in June.
  • USD/CAD tracked the June range throughout July as the RSI broke out of a downward trend, but the failed attempt to push back above the 1.3440 (23.6% expansion) to 1.3460 (61.8% retracement) region led to a break of the March/June low (1.3315) even though the momentum indicator failed to push into oversold territory.
  • The decline from the August high (1.3451) briefly pushed the RSI below 30, but lacked the momentum to produce a test of the January low (1.2957) as the indicator failed to reflect the extreme reading in June.
  • In turn, the advance from the September low (1.2994) pushed USD/CAD above the 50-Day SMA (1.3088) for the first time since May, but the exchange rate reversed coursed following the failed attempt to test the August high (1.3451), which largely lines up with the 1.3440 (23.6% expansion) to 1.3460 (61.8% retracement) region.
  • A similar scenario took shape in October as USD/CAD tracked the September range, but the exchange rate cleared the January low (1.2957) following the US election to trade to a fresh 2020 low (1.2923) in November.
  • USD/CAD remains under pressure in December as the RSI continues to track the downward trend established in November and pushes into oversold territory for the first time since June, with the exchange rate trading to a fresh yearly low (1.2736) as it snaps the range bound price action from earlier this week.
  • Still need a close below 1.2770 (38.2% expansion) to bring the 1.2620 (50% retracement) area on the radar, with the next region of interest coming in around 1.2490 (161.8% expansion) to 1.2510 (78.6% retracement).
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