**USD/CAD Reclaims 1.3700 Level, Moving Toward Multi-Week High Backed by Stronger US Dollar Momentum**
*Originally reported by FXStreet, compiled and expanded with additional insights by the assistant.*
The USD/CAD currency pair regained firm bullish momentum during mid-July 2024, surpassing the key psychological barrier of 1.3700 and aiming towards multi-week highs. A combination of a resilient US dollar, rising US Treasury yields, and subdued risk appetite in global markets has offered substantial support to the pair. This strengthening comes despite unexpectedly strong Canadian inflation data, suggesting a complex interplay of macroeconomic influences that are driving the current market structure.
The following in-depth analysis explores the reasons behind the recent surge in USD/CAD, market reactions to economic data, outlooks from analysts, and the potential scenarios that could unfold in the coming weeks.
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### Market Drivers Supporting USD/CAD Upside Momentum
**1. Broad-Based US Dollar Strength**
– The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of six major currencies, has seen a notable rebound. As of mid-July, it hovered near 104.70, recovering solid ground lost after dovish signals from the Federal Reserve in recent weeks.
– The greenback’s renewed strength is primarily driven by better-than-expected US economic data, which has swayed market sentiment away from aggressive rate cuts previously priced in by traders.
– The anticipation that the US Federal Reserve may delay its interest rate easing due to persistent inflation pressures has increased the attractiveness of the USD as a high-yielding safe-haven asset.
**2. Resilient US Economic Indicators**
– Core inflation in the United States remains sticky, highlighting ongoing pressures in the services sector pricing. As of June 2024, the annual core Consumer Price Index (CPI) is still above the Fed’s 2 percent target, albeit gradually declining.
– Recent US labor market data, including Nonfarm Payrolls and lower-than-expected jobless claims, suggest employment remains tight, further boosting expectations that the Fed might postpone monetary policy easing.
– According to data from the US Bureau of Labor Statistics, the unemployment rate held firm at 4.0 percent, showing continued resilience despite a slowing economy.
**3. Canadian Consumer Price Index (CPI) Surprises to the Upside**
– On July 16, Statistics Canada reported that Canada’s annual CPI rose to 2.9 percent in June 2024, surpassing the consensus forecast of 2.7 percent.
– However, despite this inflationary uptick, the Bank of Canada (BoC) is still expected to continue with cautious rate adjustments. Most investors believe that the central bank will likely proceed with only one more rate cut in 2024, down from two cuts previously anticipated in early Q2.
– The stronger-than-expected CPI release temporarily offered support to the Canadian dollar (loonie), creating some headwinds against the USD advance. However, the overriding global risk-off environment has outweighed this effect.
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### Technical Outlook and Chart Analysis
USD/CAD’s daily price action highlights bullish continuation patterns, with the pair climbing firmly above prior resistance levels:
– **Short-Term Resistance and Support**:
– Immediate resistance can be seen around the 1.3760 region. A decisive move beyond this level could trigger fresh buying interest towards 1.3800 and potentially the 1.3850 zone.
– On the downside, initial support stands near the 1.3680 level (recent consolidation zone), followed by stronger support at 1.3620, which coincides with the 50-day Simple Moving Average (SMA).
– **Momentum Indicators**:
– The Relative Strength Index (RSI), which measures overbought/oversold conditions, is currently situated just below the overbought territory at 68, suggesting potential consolidation or correction before the next leg higher
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