USD/CAD Weekly Technical and Fundamental Outlook
By ActionForex (with additional insights and analysis)
The US Dollar and Canadian Dollar (USD/CAD) currency pair posted mild gains last week, consolidating within a broader range as both US and Canadian economic data remained nuanced. While the pair has not broken out from its current trading range, all eyes remain on upcoming macroeconomic releases and their impact on interest rate expectations from both the Federal Reserve and the Bank of Canada (BoC).
Technical Overview: Lateral Movement Continues
USD/CAD continued its movement within a well-established range-bound pattern, closing last week with a slight bullish bias. Despite brief attempts to push higher, the pair has failed to sustain any breakout momentum over recent weeks, highlighting investor hesitation.
Highlights of the weekly technical setup:
– USD/CAD edged higher but remained capped below key resistance near 1.3790.
– The current structure still appears corrective, with room for either a bullish breakout or a reversal into a deeper pullback.
– Immediate support remains at 1.3604. A break below this level would shift the short-term outlook to bearish and confirm the start of a deeper correction.
– Resistance at 1.3790 continues to prove formidable. Sustained movement above this level could set the tone for renewed upside targeting 1.4000.
– The pair is currently supported by the 55-day EMA, which is providing base-level strength for short-term bulls.
– RSI momentum indicators remain neutral, showing neither overbought nor oversold conditions.
Short-Term Trading Considerations:
– Traders should monitor price action between 1.3600 and 1.3790. This congestion area offers both swing trading and breakout opportunities.
– If the pair decisively breaks above 1.3790, the likely bullish objective would be the 2023 high around 1.3860, followed by the psychological resistance at 1.4000.
– Conversely, a bearish breakdown below 1.3600 could see the pair falling towards 1.3480, then potentially to the March lows of 1.3350.
Fundamental Drivers Affecting USD/CAD
To understand the trajectory of USD/CAD, it’s essential to consider the broader macroeconomic landscape. Both oil prices, given Canada’s position as a major exporter, and Federal Reserve policy outlook have significant influence.
1. US Economic Indicators and Federal Reserve Policy
The US economy continues to exhibit mixed signals. While inflation is showing signs of slowing, labor market tightness and consumer demand remain robust. This increasingly complex economic backdrop is fueling uncertainty around the timing and pace of potential Federal Reserve interest rate cuts.
Key developments:
– Nonfarm Payroll data for May came in hotter than expected at 272,000 jobs, pushing back expectations for a Fed rate cut.
– The US Consumer Price Index (CPI) held steady with core inflation stubbornly high, complicating inflation targeting by the Fed.
– The Fed has maintained a cautious stance, indicating “data dependence” in deciding when to begin reducing rates.
– Fed funds futures now imply only one rate cut by the end of 2024, lower than earlier projections of two or even three cuts.
Effect on USD:
– Higher for longer US rates continue to lend support to the USD across the board, including against the Canadian Dollar.
– The yield differential between US and Canadian government bonds favors USD strength, sustaining the upside in USD/CAD.
2. Canadian Macroeconomic Performance and BoC Interest Rate Outlook
Canada’s most recent economic data suggests a softening trend, placing the Bank of Canada in a slightly more dovish position relative to the Federal Reserve.
Key highlights:
– Canadian CPI cooled in the latest print, with headline inflation edging lower to 2.7 percent in May, down from 2.9 percent the previous month.
– The BoC delivered a 25 basis
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