Title: USDCAD Technical Analysis: Buyers Step Back In After Sharp Decline – What Comes Next?
Author: Based on reporting by Justin Low, ForexLive
The USD/CAD currency pair experienced notable volatility in recent trading sessions, marked by a steep decline followed quickly by buyer re-engagement. The rapid moves in both directions have caught many traders by surprise, but the underlying technical and fundamental components provide a deeper context to recent price action. Let’s take a comprehensive dive into the USD/CAD landscape to assess current conditions and explore what traders can expect in the near term.
Overview of Recent USD/CAD Price Action
In yesterday’s trading session, the USD/CAD suffered a sharp downward thrust, closely tied to a broader retreat in the US dollar across the FX landscape. The decline brought the pair down to the 1.3610 area, which proved to be an area of strong technical support. Despite that weakness, buyers returned on the dip, regaining control during today’s session and driving the pair higher once again.
Key highlights:
– USD/CAD fell sharply yesterday from levels above 1.3700.
– Price found support near 1.3610, which aligns closely with key technical levels.
– Buyers have since re-entered, pushing the pair higher to retest broken support-turned-resistance around 1.3680-1.3700.
Technical Landscape: Important Support and Resistance Zones
The recent price swings have highlighted several key technical zones that traders are now watching closely.
1. Immediate Support Levels
– 1.3610: This zone saw one of the strongest bounces, aligning with a prior demand area and weekly support structure.
– 100-day moving average: This indicator, which lies just below the 1.3600 region, continues to act as dynamic support and a psychological barrier.
– Trendline support: A rising trendline from early April continues to offer long-term structural support for the pair on pullbacks.
2. Resistance Levels to Watch
– 1.3680-1.3700: This range is now acting as a near-term ceiling. It was broken decisively in yesterday’s session but is being retested.
– 1.3750-1.3775: A previous high from mid-May that may serve as short-term resistance if momentum continues to the upside.
– 1.3800: A more psychological level and historically significant price zone that may attract sellers again.
Momentum Indicators and Price Action
The daily Relative Strength Index (RSI) has remained relatively neutral, neither signaling extreme overbought nor oversold conditions. That leaves room for further expansion in either direction.
– RSI: Currently near the 50 mark, indicating indecision but room for upward movement should buying pressure persist.
– MACD: Still trending below the signal line, a potential bearish indicator, though starting to flatten as short-term momentum picks up.
The presence of long wicks in both directions on recent candlesticks confirms volatility and indecision in the market. This non-committal behavior from both buyers and sellers reflects uncertainty over both US and Canadian macroeconomic direction.
Macro Drivers: What’s Behind Recent Movements?
As is often the case in currency markets, the technicals are one part of the story. Macro-economic news and broader market sentiment have helped fuel the recent volatile swings.
1. US Dollar Retreat
A key driver in USD/CAD’s initial drop was the broad decline in the US dollar. This, in turn, was driven by softer-than-expected US economic data and increasing speculation that the Federal Reserve may begin its interest rate easing cycle sooner than previously projected.
– US Inflation Cooling: The recent release of CPI data showed inflation pressures easing. Core CPI fell to its lowest level since late 2021, contributing to expectations of a Fed rate cut.
– Fed Rate Cut Expectations: Markets are now pricing in a likely rate cut by September 2024. The CME FedWatch Tool
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