**USD/CAD Price Forecast: Evaluating the Potential Double Top Pattern Near 1.3960 Resistance Level**
Original article by Pablo Piovano for FXStreet
Expanded and rewritten by [Your Name]
The U.S. Dollar (USD) has exhibited renewed strength against the Canadian Dollar (CAD) in recent weeks, revisiting crucial resistance levels and presenting traders with a potential technical formation: a double top pattern. As USD/CAD closes in once again on the 1.3960 zone, technical analysts are closely monitoring the possibility of a reversal pattern that may indicate a medium-term top in the currency pair.
This comprehensive analysis will explore not only the chart dynamics currently influencing the USD/CAD exchange rate, but also how macroeconomic conditions, interest rate expectations, oil prices, and central bank policy divergence are playing pivotal roles. By examining all these elements and supporting our thesis with recent data and forecasts, we’ll assess the likelihood of a sustained breakout versus a bearish reversal near the multi-month high.
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**Key Technical Highlights:**
– USD/CAD remains broadly supported above the 1.3600 mark, having recently climbed close to the 1.3960 resistance level.
– The 1.3960 area represents a potential double top, previously tested during March 2023.
– Technical indicators such as RSI (Relative Strength Index) are showing signs of overbought conditions.
– Short-term support is located around 1.3835, representing the 20-day Simple Moving Average (SMA).
– Broader bullish bias remains intact as long as price action stays above the 200-day SMA near 1.3470.
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**What Is a Double Top and Why It Matters Here:**
A double top is a bearish reversal chart pattern that typically signals the end of an uptrend. It forms when the price of an asset reaches a high, pulls back to a support level, and then rises again to the previous high but fails to break through it convincingly. This inability to breach the resistance level creates two peaks that resemble an “M” shape on the price chart.
In USD/CAD, the region near 1.3960 has acted as a ceiling in prior instances, making it significant for traders who are analyzing trend continuation versus potential reversal.
Conditions that support a double top scenario include:
– Bearish divergence on momentum oscillators like MACD and RSI.
– Decrease in buying volume near resistance.
– Breakdown below the neckline support following the second peak.
For USD/CAD, a drop below the neckline support near 1.3780 would suggest follow-through selling and could open the door to deeper corrections toward 1.3600, 1.3470 or even lower.
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**Macro Drivers Behind USD/CAD Strength:**
Several macroeconomic and geopolitical factors have contributed to the recent appreciation in USD/CAD:
1. **Federal Reserve’s Hawkish Stance:**
– Despite growing market expectations for a pause in Federal Reserve rate hikes after Q4 2023, the central bank has consistently signaled that inflation remains too sticky to declare victory.
– The Fed’s dot plot indicates the possibility of one more rate hike and a slower pace of cuts in 2024 than previously forecast.
– Elevated interest rate differentials between the U.S. and Canada support the USD.
2. **Bank of Canada’s Neutral-to-Dovish Bias:**
– The Bank of Canada (BoC) held rates steady at 5.0% in recent meetings, citing concerns about a weakening housing market and slower GDP growth.
– Economists are predicting a mild technical recession in Canada during Q4-2023 or early 2024.
– BoC governor Tiff Macklem emphasized a “watch-and-wait” posture, contrasting with the Fed’s active messaging.
3. **Crude Oil Prices and Canadian Dollar Correlation:**
– Historically, CAD has a
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