USDCAD Bulls Stall Near Key Resistance: What’s Next for the Pair?
Written by Justin Low, originally published on ForexLive via TradingView.
The USD/CAD currency pair has recently seen bullish momentum lose steam as it challenges a major resistance zone. After rallying for most of April 2024, the pair is now trading near a critical resistance level that could determine its next significant move. Market participants are closely monitoring U.S. and Canadian economic data, crude oil prices, and monetary policy expectations to gauge what may come next for the loonie and the greenback.
This article provides a detailed analysis of the USD/CAD outlook, including technical levels, fundamental drivers, and market sentiment.
Overview of Recent USD/CAD Performance
– The USD/CAD pair attempted to rise above the 1.3800 mark, approaching levels not seen since early 2023.
– Bullish momentum was largely driven by broad U.S. dollar strength, supported by stronger-than-expected U.S. economic data and rising yields.
– The Canadian dollar, partially supported by resilient oil prices and better-than-expected domestic data, has started to offer moderate resistance to further USD gains.
– As of mid-May 2024, attempts to break above the 1.3800 resistance area have failed, suggesting possible consolidation or a pullback.
Technical Analysis: Resistance Holding Strong
A major technical barrier lies around the 1.3800 to 1.3850 region. The USD/CAD pair has struggled to break and hold above this zone multiple times over the past year. Technical indicators suggest bulls may be losing momentum.
Key technical levels:
– Resistance: 1.3800-1.3850
– This area was prominent in October and November 2023, acting as a ceiling on previous rallies.
– A confirmed breakout above this region could open the door toward the 1.4000 psychological level.
– Support: 1.3710
– Initially served as a resistance level but flipped to support after the latest bullish move.
– A break below this level could signal a deeper consolidation or retracement toward 1.3650.
– 100-day and 200-day moving averages are sloping higher, supporting the broader bullish structure.
– RSI (Relative Strength Index) was recently hovering near overbought territory (above 70), suggesting some correction could be healthy for the uptrend.
Fundamental Factors Driving USD/CAD
1. U.S. Dollar Dynamics
The strength of the U.S. dollar has played a pivotal role in lifting USD/CAD in recent weeks.
– Strong U.S. economic data:
– Nonfarm payrolls, inflation, and retail sales figures have consistently beat expectations, reinforcing the “higher for longer” interest rate narrative.
– Core CPI showed sticky inflation in April, causing markets to push back Fed rate cut expectations to late 2024.
– Fed speakers remain hawkish:
– Federal Reserve Chair Jerome Powell and other FOMC members have warned about prematurely easing policy amid lingering inflationary pressures.
– Interest rate futures now suggest only one rate cut is likely by the end of the year, or possibly none if inflation persists above target.
2. Bank of Canada Policy Outlook
In contrast to the Federal Reserve, the Bank of Canada (BoC) has shown a more dovish tone.
– While Canadian inflation has moderated, policymakers remain cautious and data-dependent.
– Market expectations suggest the BoC may cut rates before the Fed, potentially as early as June or July 2024.
– This divergence in policy outlook between the Fed and BoC continues to pressure the Canadian dollar.
3. Crude Oil Influence
Canada is a major oil exporter, and fluctuations in crude prices have a direct impact on the Canadian dollar.
– Oil prices remain volatile:
– Brent and WTI crude traded in the $72 to $84 per barrel range throughout Q1 and Q2 2024.
Read more on USD/CAD trading.