Title: USD/CAD Rebounds from Support: Can Bulls Regain Control?
Author Credit: Adapted and expanded from original analysis by InvestingLive.com
The USD/CAD pair recently experienced a notable bullish move as it bounced off a key technical support level. This development triggered renewed interest among traders and analysts, raising the question: Can buyers reignite the upward momentum? In this article, we analyze the technical setup, macroeconomic underpinnings, and market sentiment around USD/CAD, and assess the potential paths the pair might take moving forward.
Overview of Recent Price Action
The USD/CAD currency pair has consolidated in recent weeks, trading within a defined range after failing to maintain its upward momentum. However, in recent sessions, the pair rebounded from a precise support zone near the 1.3600 mark, a level that has historically acted as a floor in prior trading cycles.
Key Observations:
– The pair found buyers after touching down at 1.3600.
– A previously tested demand zone between 1.3580 and 1.3620 acted as a trigger for bullish response.
– Price is attempting to break above the 1.3700 barrier, which aligns with recent highs and moving average resistance.
Technical Analysis
Technical indicators play a pivotal role in shaping trader sentiment toward a currency pair like USD/CAD. As of the most recent analysis, the pair has undergone a rebound not just from horizontal support but also from confluence indicators tied to trend lines and moving averages.
Key Technical Points:
– Support: The area between 1.3580–1.3620 stands out as a strong support zone.
– Resistance: Immediate resistance is located around the 1.3700–1.3730, beyond which the pair could target 1.3800 and 1.3860.
– Trendlines: An ascending trendline from late April has held as support, contributing to the recent bounce.
– Moving Averages: The 50-period and 200-period EMAs on the 4H chart show a mixed picture, with price trading above the 50-period EMA, adding a bullish tilt for the short term.
Chart Patterns:
– Bullish Candlestick Formation: The recent 1.3600 area rebound came with a bullish engulfing candle on the 4-hour chart, indicating that buying volume outpaced sellers at this support zone.
– Consolidation Breakout Potential: If price can sustain above 1.3730, it may confirm a breakout from a symmetrical triangle formation that’s been developing since early May.
Relative Strength Index (RSI) Analysis:
– RSI on the daily chart has moved above 50, suggesting that the balance of power is favoring bulls.
– If RSI approaches 70, it could indicate that the asset is becoming overbought, potentially slowing upward momentum.
Fibonacci Retracement Levels:
– Measured from the swing low near 1.3300 to the recent high of 1.3840, the 61.8% Fibonacci level falls close to 1.3560, adding confirmation to the recent support zone near 1.3600.
Macroeconomic Drivers
Alongside technicals, the USD/CAD exchange rate is influenced by a wide spectrum of macroeconomic factors. The recent bounce can also be tied to fundamental news impacting both the US dollar and the Canadian dollar.
US Dollar Fundamentals:
– Fed Monetary Policy: Ongoing comments from Federal Reserve officials suggest that interest rates will remain higher for longer. Rate expectations support the USD, especially if inflation does not fall as quickly as anticipated.
– Inflation & Economic Data: US core inflation has remained sticky, while labor market and PMIs have come in stronger than expected. This data has provided the greenback with tailwinds.
– 10-year Treasury Yields: US bond yields have risen slightly, promoting USD strength due to capital inflows into safer assets.
Canadian Dollar Fundamentals:
– Oil Prices: Canada, a net oil
Read more on USD/CAD trading.