**USD/CAD Faces Test at Key Resistance as Bulls Weigh Next Move**
*Adapted and expanded from an article by Fawad Razaqzada, Investing.com*
The USD/CAD currency pair has recently encountered significant resistance just beneath a key medium-term ceiling, raising questions about whether the U.S. dollar can maintain its bullish momentum against the Canadian dollar. Although the U.S. dollar has shown resilience against most major currencies, breaking decisively above important psychological and technical levels, the journey for further gains isn’t guaranteed. Technical indicators and macroeconomic fundamentals present a mixed picture for the pair.
This article analyzes recent price action, technical trends, and economic factors influencing USD/CAD, and discusses what traders need to watch in the short and medium term.
### Current Technical Outlook for USD/CAD
USD/CAD surged higher at the beginning of May, attempting to push through a well-established resistance zone around 1.3650–1.3700. The exchange rate broke above trendline resistance that had capped gains since 2020, with some short-term momentum following the breach. However, it has since seen limited follow-through, highlighting market hesitation.
Key technical elements include:
– **Trendline Breakout**: The breakout above the long-term descending trendline suggests a shift in sentiment.
– **Significant Resistance Zone**: The 1.3650–1.3700 area marks a major resistance range, having turned back bulls multiple times over the past year.
– **Lack of Momentum Post-Breakout**: Despite breaching key resistance, the pair has stalled, showing signs of hesitation in committing to a new bullish trend.
### Medium-Term Chart Analysis
On the weekly timeframe:
– The USD/CAD pair remains inside a broad consolidation zone, evident between 1.3100 and 1.3700.
– Repeated failures to break out of this zone on either side suggest market uncertainty or balance.
– Trendline resistance from the 2020 highs has recently been breached, but this could be a false breakout unless sustained buying takes place to confirm a renewed uptrend.
On the daily chart:
– The pair has fluctuated, failing several times in May to close above 1.3700.
– Rising trend support from the early 2024 lows provides a short-term bullish structure.
– A confirmed breakout above 1.3700 with higher closes would signal strength and potentially attract further buying interest.
– If the pair dips below the short-term trend support and slips under the 1.3600 and 1.3550 levels, it could shift back into a neutral or even bearish bias.
### Economic Backdrop: U.S. Dollar Fundamentals
The U.S. dollar’s broader strength has supported USD/CAD over the past few months. Several fundamental factors have propped up the greenback:
– **Sticky U.S. Inflation**: U.S. inflation remains persistently above the Federal Reserve’s 2% target. This has pushed expectations of interest rate cuts further out, supporting the dollar.
– **Strong Labor Market**: The U.S. continues to show stable job growth, which reduces any immediate pressure for the Fed to ease monetary policy.
– **Hawkish Fed Comments**: Federal Reserve officials have recently reiterated the need for caution when considering rate cuts, opting to wait for clearer disinflation trends. Such rhetoric has been dollar-positive.
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 3.4% year-over-year in April 2024, a slight improvement from earlier months but not enough to convince the Federal Reserve that inflation has been tamed.
The combination of these factors has made the U.S. dollar an attractive safe haven and yield play, especially against lower-yielding currencies like the Japanese yen and the Swiss franc. However, the Canadian dollar presents a unique case due to its correlation with commodity prices and its relatively stable interest rate
Read more on USD/CAD trading.