Title: USD/CAD Rebounds from Support: Can Bullish Momentum Return?
Author Attribution: Adapted and expanded from content originally published by InvestingLive.com
As global forex markets closely monitor key currency pairs, one of the most watched is the USD/CAD. This pair, which reflects the exchange rate of the U.S. Dollar against the Canadian Dollar, often reacts to economic indicators, central bank policies, and commodity price shifts—most notably oil, due to Canada’s significant reliance on crude exports. Recent technical movements in the pair show a resilient bounce off a critical support level, raising the question: Can bullish momentum gather traction once again?
This article delves into the technical and fundamental outlook for USD/CAD, the significance of current price action, and what traders should watch in the coming days.
Recent Price Action and Technical Rebound
Over the past several sessions, USD/CAD experienced renewed interest from buyers after reaching a strong support zone. This level, which had served historically as a pivot point when approached in prior months, proved effective again as price surged higher after testing it.
Key Technical Highlights:
– The pair bounced strongly from the 1.3600–1.3610 support area, a zone that previously held firm multiple times.
– Following the bounce, price action formed a bullish engulfing candle on the daily chart, suggesting that buyer momentum may be returning.
– The 50-period Moving Average (on the 4-hour chart) is beginning to flatten, reflecting the early stages of potential trend reversal or continuation.
– Immediate resistance sits near 1.3675, followed by a more significant hurdle at 1.3740.
– If the price breaks above 1.3740, there is potential for the pair to retest the April highs near 1.3850.
Traders analyzing this formation noted that while the bounce is significant, a decisive close above 1.3740 is essential for further bullish confirmation.
Technical Indicators Signal a Shift
Several widely-used technical indicators are offering clues about possible next moves:
– Relative Strength Index (RSI): Currently hovering around the neutral 50-level, the RSI has turned upward, hinting at increasing momentum without yet reaching overbought territory.
– MACD (Moving Average Convergence Divergence): Although still below the zero line, the MACD has crossed above the signal line, indicating early bullish divergence.
– Fibonacci Analysis: Applying a Fibonacci retracement from the March high to the May low shows that price is testing the 38.2% level. A clean break and continuation through the 50% level would reinforce bullish continuation.
– Bollinger Bands: The price recently touched the lower Bollinger Band, a sign of oversold conditions, followed by a push back toward the median band.
Fundamental Context Supporting USD/CAD Movement
Beyond technical analysis, it is crucial to consider the fundamental backdrop influencing USD/CAD. Several intertwined macroeconomic and geopolitical factors are currently in play.
1. Divergence in Central Bank Policy
– The U.S. Federal Reserve has maintained a “higher for longer” stance on interest rates in the face of persistent inflation. Market expectations for mid-2024 rate cuts have lessened, adding to dollar strength.
– Conversely, the Bank of Canada (BoC) is facing increasing pressure to pivot toward rate cuts due to stagnating economic activity and softer inflation.
– Policy divergence often results in capital flows favoring the higher-yielding currency—in this case, boosting demand for the U.S. Dollar relative to the Loonie.
2. Oil Markets Driving the Canadian Dollar
– The Canadian Dollar is highly sensitive to changes in crude oil prices. Recent softness in oil markets has contributed to weakness in CAD.
– According to the U.S. Energy Information Administration (EIA), global oil demand is expected to flatten into Q3 2024, which could limit upside for crude oil and weigh heavily on CAD.
– Unless there is a sharp rebound in Brent and
Read more on USD/CAD trading.