Title: USD/CAD Slides Temporarily, But Bullish Bias Remains Amid Strong Fundamentals
Author Credit: Adapted and expanded from original analysis by EconoTimes (FxWirePro)
The USD/CAD currency pair has recently experienced a minor pullback, retreating from its recent highs. However, technical indicators and macroeconomic fundamentals suggest that the bullish bias for the pair remains intact in the medium to long term. Despite near-term resistance, factors such as interest rate differentials, commodity price volatility, economic divergence between the US and Canada, and global risk sentiment continue to influence the pair in favor of the US dollar.
In this comprehensive analysis, we examine recent price movements, fundamental drivers, technical signals, and forecasts for USD/CAD to illustrate why the pair, although currently consolidating, is likely to resume upward momentum.
Recent Price Action
As of the latest trading sessions, USD/CAD has shown signs of losing momentum after a significant rally earlier in the quarter. The pair peaked toward the 1.3700 level before retreating slightly below it. This pause is seen as a short-term correction rather than a reversal of trend.
– USD/CAD climbed as high as 1.3700 in the past two weeks amid broad-based USD strength and declining oil prices.
– The rally seemed to pause due to oversold conditions in the Canadian dollar (CAD) and profit-taking by investors ahead of key economic events.
– The current trading range is between 1.3630 and 1.3700. A sustained break above 1.3700 could open the door toward 1.3800 and higher.
Technical Outlook
From a technical perspective, the USD/CAD uptrend remains alive even though momentum indicators are diverging. The outlook continues to favor buyers as long as the support zones remain intact.
Key Technical Indicators:
– Relative Strength Index (RSI): Hovering near the neutral 50 level, indicating room for volatility in either direction, though the recent downshift shows fading bullish momentum temporarily.
– Moving Averages:
– 21-day EMA: Acting as dynamic support for the price, indicating ongoing bullish sentiment.
– 100-day SMA: Well below current price levels, confirming longer-term bullish momentum.
– Pattern formation:
– While there’s no formal bullish flag or pennant formation, the series of higher lows suggests the market is still inclined toward buying dips.
Support and Resistance Levels:
– Immediate support: 1.3630 (previous swing low and intraday support area)
– Key support: 1.3560 (21-day EMA, horizontal support over multiple weeks)
– Resistance: 1.3700 (psychological resistance, recent top)
– Breakout point: 1.3800 (future resistance if 1.3700 is sustainably cleared)
Trading Strategy Insights (Short to Mid-Term)
Traders watching this pair may prefer a buy-on-dips strategy, considering the underlying factors that remain favorable to the USD. For now, a close above 1.3700 would be needed to confirm trend continuation and trigger further upside potential. Conversely, a failure to hold above 1.3560 would begin to challenge the bullish outlook.
Suggestions for positions:
– Long positions could be considered on a dip toward 1.3600 with stops below 1.3560.
– Targets remain at 1.3700 initially, and then 1.3800 in the event of a breakout.
– Short positions should be carefully considered only if the price breaches below 1.3560 with strong volume and fundamentals favoring further CAD strength.
Fundamental Drivers of USD/CAD
Understanding the movement in USD/CAD requires looking at both domestic and global fundamentals that shape demand for both currencies.
1. Interest Rate Differentials
– The Federal Reserve’s stance remains relatively more hawkish than the Bank of Canada.
– As of now, markets are anticipating only gradual rate cuts from the Fed, due to persistent inflation
Read more on USD/CAD trading.