**USD/CAD Trades Slightly Lower Below 1.3800 Ahead of US ISM Services PMI Release**
*Original reporting credit to FXStreet writer Anil Panchal*
The USD/CAD currency pair has softened slightly, trading just below the 1.3800 level in the early Asian session on Monday, ahead of the release of the US ISM Services PMI data. The pair remains in a consolidative phase following a week of notable volatility driven by differing central bank policy expectations, mixed US economic data, and fluctuations in global oil prices. Investors remain cautious, positioning ahead of the key data release expected to offer new signals on the health of the US services sector.
This tentative retreat in the USD/CAD pair underscores trader hesitancy to commit in any particular direction until greater clarity on the US growth outlook emerges.
### Recent Price Trends and Technical Patterns
– USD/CAD touched a weekly high of 1.3791 before retreating slightly.
– Despite Monday’s early-downside price action, the pair remains within close range of its weekly upper levels.
– The 14-day Relative Strength Index (RSI) is showing signs of moderation, easing from near-overbought levels, which suggests consolidation.
– The pair continues to trade above the 50-day Simple Moving Average (SMA), indicating underlying bullish structure, but momentum has slowed.
– Immediate downside support lies near 1.3735, the 20-day EMA. A break below could expose 1.3665 and further down to the 100-day EMA around 1.3600.
– On the upside, resistance remains near the psychological mark of 1.3800, followed by the 1.3850-1.3860 zone, which aligns with recent highs set in April and October 2023.
### Drivers Behind the Recent USD/CAD Moves
#### 1. Awaiting the US ISM Services PMI Report
– The ISM Services PMI, scheduled for release on Monday, is a critical gauge of the US services sector, which comprises more than two-thirds of the US economy.
– Economists expect the index to decline slightly to 52.5 in April from 53.8 in March.
– Any number above 50 signals expansion in the sector, while a print below that threshold would raise concerns about slowing economic momentum in the US.
– A weaker-than-expected PMI may dampen expectations of Federal Reserve hawkishness, potentially leading to further USD weakness.
– Conversely, a strong services reading could reinforce arguments for the Fed to keep interest rates elevated for longer, possibly boosting the greenback.
#### 2. Federal Reserve Rate Outlook and Market Expectations
– The Federal Reserve held its federal funds rate steady in its recent meeting, reiterating its commitment to data dependency.
– Recent inflation surprises, particularly sticky core PCE readings, have reignited concerns that rate cuts may be delayed.
– Markets are now pricing in only one or two rate cuts by the end of 2024, down from earlier expectations of up to four reductions.
– Elevated Treasury yields, reflecting investors’ recalibrated rate expectations, have generally supported the USD but failed to lift USD/CAD above key resistance recently.
#### 3. Oil Prices and Canadian Dollar Correlation
– Crude oil, one of Canada’s top exports, continues to fluctuate based on global demand projections and geopolitical developments.
– WTI crude has traded in a range between $78 and $83 per barrel over the past week.
– Robust oil prices tend to bolster the Canadian dollar due to the country’s heavy reliance on energy exports.
– Ebbing tensions in the Middle East and cautious optimism about China’s economic recovery have provided some support to global oil demand forecasts.
– However, rising US inventories and slower-than-expected spring driving demand have capped oil gains, limiting CAD appreciation.
#### 4. Canadian Economic Landscape
– On the Canadian macroeconomic front, recent data includes softer-than-expected GDP growth
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