**USD/CAD Price Forecast: Testing Key Resistance Near 1.3800 as Market Dynamics Shift**
*By: Christian Borjon Valencia, FXStreet — Expanded and Updated Edition*
The USD/CAD currency pair has recently drawn increased attention from traders and analysts as it approaches a critical resistance level near the 1.3800 mark. As volatility returns to the foreign exchange market, the Canadian dollar faces downward pressure amid a combination of domestic economic factors and broad US dollar strength. This article provides an in-depth analysis of the current technical and fundamental landscape impacting the USD/CAD pair, exploring prospects for both bullish continuation and potential rejection at the upper boundary of its prevailing trading range.
**Overview of the Current Market Structure**
The USD/CAD has been moving within a well-defined rectangle pattern on the daily chart, bound by support near 1.3600 and resistance around 1.3800. As of the time of writing, price action is testing the upper bound of this rectangle, with market participants watching closely for confirmation of a breakout or a reversion back into the range.
Key highlights:
– The pair recently tested the 1.3800 resistance zone but has yet to produce a decisive break higher.
– Consistent higher lows on the daily timeframe suggest growing bullish momentum, yet a durable move above 1.3800 is required to validate the trend.
– Technical signals remain mixed, as oscillators approach overbought territory, hinting at short-term consolidation or pullback.
**Technical Analysis**
The technical structure of the USD/CAD pair reveals that buyers remain in control, but key resistance levels could act as barriers to further upside.
Key technical observations:
– **Rectangle Pattern:** The price has been range-bound between 1.3600 (support) and 1.3800 (resistance) for several weeks. The repeated testing of resistance suggests increasing pressure from bulls.
– **200-Day Simple Moving Average (SMA):** The pair is comfortably trading above the 200-day SMA, currently near the 1.3450 level, reinforcing a medium-term bullish bias.
– **Relative Strength Index (RSI):** The RSI on the daily chart hovers close to 65, showing strong momentum but also nearing overbought territory, which could lead to a corrective move if resistance holds.
– **MACD Indicator:** The MACD histogram remains in bullish territory, while the signal line holds above the zero mark, indicating sustained upward momentum.
Daily Chart Levels:
– **Resistance Levels:**
– 1.3800: Immediate resistance coinciding with the upper boundary of the rectangle.
– 1.3860: A multi-month high from late 2023.
– 1.3900: Psychological barrier and next potential target post-breakout.
– **Support Levels:**
– 1.3710: Short-term support near recent swing lows.
– 1.3600: Base of the rectangle pattern and key inflection area.
– 1.3560: Close to the 50-day SMA and a secondary level to watch in case of deeper pullback.
**Fundamental Drivers Behind USD/CAD**
While technicals highlight a bullish lean, the broader fundamental backdrop plays a critical role in influencing the pair’s direction. Several macroeconomic factors have impacted the Canadian dollar’s underperformance and the relative strength of the US dollar.
1. **Crude Oil Prices Decline**
Canada, as a major oil exporter, has seen its currency weaken amid softening crude oil prices. West Texas Intermediate (WTI) crude has recently dipped below $78 per barrel due to several factors:
– Inventories reported by the US Energy Information Administration (EIA) showed unexpected builds, suggesting weaker demand.
– Concerns over global economic slowdown, primarily in China and Europe, have weighed on the oil demand outlook.
– A strong US dollar has pressured dollar-denominated commodities like oil.
Given that crude oil exports are a
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