**USD/CAD Price Forecast: Bearish Momentum Builds Below 1.3720**
*By Christian Borjon Valencia | Adapted and Expanded for In-depth Analysis*
The USD/CAD currency pair has entered a corrective phase, trading below the key 1.3720 support level as investor sentiment shifts due to a mixture of domestic Canadian data and international macroeconomic forces. The US Dollar, which had gained strength from hawkish Federal Reserve expectations earlier in the year, is facing renewed downward pressure amid changing economic indicators and improving sentiment toward the Canadian economy. This article breaks down the latest developments, technical levels, and broader macroeconomic factors influencing USD/CAD.
**Recent Performance and Market Sentiment**
The USD/CAD exchange rate has slipped away from recent highs, with spot prices falling below the 1.3720 threshold in early trading sessions. The pair faced significant selling pressure after failing to sustain momentum above 1.3775, establishing that zone as a key resistance in the short term. Declining US bond yields, a softening greenback, and improving oil prices have all contributed to the Canadian Dollar’s advance.
Key highlights from recent market action include:
– USD/CAD reversed lower from the 1.3775 area
– The pair trades below the 50-period Exponential Moving Average (EMA) on the 4-hour chart, indicating bearish short-term momentum
– Canadian Dollar strength is partially supported by rebounding crude oil prices
– US inflation readings and expectations of a dovish Fed in 2024 are pressuring the USD
**Technical Analysis: Bearish Setup Confirmed**
From a technical standpoint, USD/CAD is showing clear signs of a bearish continuation trend. Price action has produced multiple lower highs and lower lows, reinforcing the downside bias. The recent breach of the 1.3720 level, a key support on both intraday and daily charts, signals potential for deeper declines in the near term.
Key technical indicators:
– The 50-period EMA on the 4-hour chart has crossed above spot prices, indicating that sellers are in control
– Relative Strength Index (RSI) is below 50, suggesting the momentum favors bears
– A descending trendline from the recent high at 1.3780 also reaffirms downside momentum
Important technical levels to watch:
– Immediate support: 1.3680, followed by 1.3625
– Key resistance zones: 1.3720 (now turned resistance), 1.3750, and 1.3780
– Bearish target on a break below 1.3625: around 1.3550, close to the 200-day Moving Average
**Fundamental Drivers Behind USD/CAD Movement**
The weakening of the US Dollar corresponds to several macroeconomic developments. December 2023 and early 2024 have showcased a softer-than-expected economic landscape in the United States. Both inflation and retail sales have shown signs of moderation, leading markets to anticipate rate cuts in the second half of 2024.
Meanwhile, Canada’s economy has shown resilience, especially in the labor market, which adds support for the loonie. Moreover, the Bank of Canada (BoC) has been cautious in its policy messaging, balancing economic risk and inflation expectations.
Factors supporting CAD strength:
– Crude oil prices have risen due to geopolitical tensions and OPEC+ production cuts. Given Canada’s status as an oil exporter, higher oil prices typically benefit the CAD
– Canadian labor data remains robust with low unemployment and rising wages
– The latest Canadian CPI print showed sticky inflation, reducing pressure on the BoC to cut rates in the near term
Factors weighing on USD:
– US CPI for November came in lower than expected at 3.1% YoY, down from 3.2% in October
– Core inflation also registered below expectations, suggesting that disinflation is progressing
– Fed officials including Jerome Powell have adopted a less haw
Read more on USD/CAD trading.