**USD/CAD Price Outlook: Testing the Rectangle Pattern’s Upper Resistance Near 1.3800**
*By: FXStreet News, Original Author – Christian Borjon Valencia*
The USD/CAD currency pair is once again drawing close attention as it approaches the upper boundary of a well-defined rectangle pattern on the daily chart. With the 1.3800 level acting as a key resistance zone, traders and market analysts are monitoring for a potential breakout or rejection at this level. The pair’s price action continues to oscillate within a range that reflects a consolidation phase in the market, often preceding a strong move in either direction.
This comprehensive update explores the technical setup, macroeconomic context, and various scenarios that may unfold in the coming sessions.
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**USD/CAD Overview: Range-Bound Trading Within Rectangle Formation**
– For the past several weeks, USD/CAD has been consolidating within a horizontal rectangle pattern on the daily chart.
– This classic technical formation indicates market indecision, typically defined by horizontal levels of support and resistance.
– Price action has been largely confined between a support level near 1.3600 and resistance near 1.3800.
– The upper edge of this channel around 1.3800 remains a crucial resistance level and could dictate future trading direction.
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**Key Technical Highlights**
– **Rectangle Resistance Test:** USD/CAD is now testing resistance near 1.3790-1.3810, which has capped gains several times since early June 2024.
– **Support Level:** On the downside, the 1.3600 handle holds firm as key support and represents the bottom of the rectangle and a safety net for short-term bulls.
– **Moving Averages:** The 50-day and 100-day exponential moving averages (EMA) are aligning near 1.3680-1.3700, providing dynamic support beneath the current price.
– **Relative Strength Index (RSI):** Momentum oscillators such as RSI on the daily timeframe are hovering just below overbought levels, suggesting upcoming consolidation or correction, unless buyers push ahead with strength.
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**Fundamental Factors Influencing USD/CAD**
Several macroeconomic factors are at play, influencing USD/CAD’s recent range-bound behavior:
1. **US Interest Rate Expectations:**
– The Federal Reserve has maintained a cautious tone in recent meetings, emphasizing a data-dependent approach before initiating any interest-rate cuts.
– June’s FOMC meeting minutes revealed hesitancy in lowering rates until inflation makes more convincing progress towards the Fed’s 2% target.
– Stronger-than-expected US data, including GDP growth and employment numbers, have kept rate cut expectations in check, supporting the US Dollar.
2. **Canadian Economic Outlook:**
– The Bank of Canada (BoC) cut rates by 25 basis points in its recent meeting, citing cooling inflation and slower-than-expected GDP growth.
– With inflation slowly inching downward and labor market conditions showing moderate slack, the BoC appears more dovish than the Fed, contributing to the recent relative weakness in the Canadian Dollar.
3. **Oil Price Volatility:**
– As a commodity-linked currency, CAD reacts strongly to changes in oil prices.
– West Texas Intermediate (WTI) crude has shown choppy behavior between $76-$82 per barrel in recent weeks.
– A rise in oil prices typically strengthens CAD, while a drop weakens it. This inverse correlation with USD/CAD remains important for traders to watch.
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**Market Sentiment and Positioning**
– **Commitment of Traders (COT) Report:** The latest COT report from the Commodity Futures Trading Commission (CFTC) shows a net bearish bias on CAD positions by speculative traders.
– **Volatility Indicators:** Implied volatility on USD/CAD options remains subdued, suggesting market participants expect continued consolidation in the near term.
– However, significant surprises from central banks or economic data might
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