**USD/CAD Forecast: Loonie Eyes 1.4025 Support as US Dollar Retreats**
*Original article by Christian Borjon Valencia, FXStreet. Expanded and updated with additional insights and market data.*
The USD/CAD pair has been encountering pressure near the 1.4000 level, with recent price action suggesting a potential test of key support near the 1.4025 zone. After reaching multi-month highs earlier in October, the pair has shown signs of a corrective pullback amid shifting Federal Reserve expectations and a stronger Canadian Dollar supported by firm energy prices.
This expanded outlook discusses the current technical and fundamental perspectives impacting the USD/CAD pair, highlighting key support and resistance levels, economic drivers from both Canada and the United States, and looming risks.
## Summary of Key Developments
– USD/CAD has pulled back sharply after testing highs above 1.3700 in early October.
– The pair is currently testing the key support zone near 1.4025, which sat at the heart of prior resistance areas in late September.
– US inflation and interest rate expectations are softening, weighing on the greenback.
– Rising oil prices and strong Canadian housing data have underpinned the Canadian Dollar.
– Market participants await critical economic updates including Canadian CPI and US labor market readings.
## Technical Overview: USD/CAD Eyes Horizontal Support
Recent USD/CAD price action has seen the pair reverse from an upper-bound range, dropping to flirt with the 1.4025 support area. This level is significant, having previously acted as resistance in past sessions before giving way to bullish momentum.
**Key Technical Levels:**
– Immediate support lies at 1.4025, a former breakout area.
– Further support resides at 1.3965 – the 50-day Simple Moving Average (SMA).
– Psychological support at 1.4000 is also in play.
– Resistance is seen at the 2023 high just above 1.3785.
– Additional barrier at 1.3870 from late 2022 convergence.
A clean break below the 1.4025 level may open the door for further losses toward the medium-term trendline support near 1.3900. Meanwhile, persistent strength above that level suggests consolidation before a possible reattempt at the 1.3700–1.3800 zone.
## Fundamentals Driving USD/CAD
### United States: Softening Inflation and Hawkish FOMC Easing
The US Dollar has faced declining momentum as inflationary pressures appear to be easing in recent data prints. The US Consumer Price Index (CPI) rose modestly in the last report, and recent Producer Price Index (PPI) figures were also tepid. These developments have led markets to pare back expectations for another Federal Reserve rate hike in 2024.
**Key U.S. Developments:**
– September Core CPI rose 0.3% MoM, slightly below consensus.
– Headline CPI edged higher at 3.7% YoY, reflecting sticky shelter and services costs.
– PPI deceleration and weak retail sales added more dovish positioning to rate futures.
– Fed Funds futures now price in the possibility of the Fed being done with rate hikes for this cycle.
While the Federal Reserve maintains a cautious language, Chair Jerome Powell has suggested that policy is already in sufficiently restrictive territory. The resulting drop in US Treasury yields—particularly the 10-year note—has led to a moderation in US Dollar strength.
### Canada: Oil Gains and Resilient Economy Provide Support
On the Canadian side, economic resilience has been more robust than expected. Most notably, oil prices have continued their upward trend, with West Texas Intermediate (WTI) crude climbing toward the $90 per barrel mark. As oil is Canada’s largest export, its rally has provided support to the Loonie, helping the CAD strengthen against the US Dollar alongside rising export revenues.
**Canadian Economic Highlights:**
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