**USD/CAD Falls for Third Consecutive Day: Bearish Pressure Persists but Technical Indicators Hint at Potential Bounce**
*Original author: VT Markets*
The USD/CAD currency pair extended its decline for the third straight day this week, dropping near five-month lows. Amid the current bearish momentum, some bullish technical patterns are beginning to emerge, potentially signaling a reversal or at least a corrective move in the short term. The pair’s recent drop has been largely influenced by a combination of U.S. macroeconomic data, oil price fluctuations, central bank expectations, and overall market sentiment.
In this extended analysis, we explore the recent movement of the USD/CAD pair, the underlying macroeconomic factors impacting both the U.S. dollar and the Canadian dollar, upcoming data releases, and key technical levels to watch. We also examine potential scenarios traders may encounter, including both bullish and bearish outcomes.
## Recent Price Action: USD/CAD Extends Downward Trend
The USD/CAD pair slipped for a third consecutive session on Wednesday, trading as low as 1.3627, levels not seen since early January. This prolonged slide represents a nearly 1.3% decline from the monthly high of 1.3800.
Key highlights from the recent price action include:
– **Three-Day Decline**: The pair has dropped from 1.3780 toward 1.3620, reflecting consistent selling pressure.
– **Support Approaching January Lows**: The 1.3600 zone marks an important horizontal support, where previous bounces occurred, signaling possible interest from buyers around this region.
– **Price Closes Near Lows**: Daily closes have remained close to intraday lows, confirming bearish momentum is intact in the short term.
Despite the weakness, early signs of a potential bullish reversal are emerging on the technical front, especially as RSI readings approach oversold territory and the price nears a critical support area.
## Macro Drivers Behind USD Weakness and CAD Strength
The recent weakness in the USD/CAD pair is influenced by macroeconomic fundamentals on both sides of the border. With U.S. economic data softening slightly and Canadian fundamentals showing relative improvement, investors are recalibrating rate expectations and risk appetite.
### U.S. Dollar Weakness
Several recent developments have contributed to the U.S. dollar’s pullback across major currencies:
– **Soft U.S. Data**: The U.S. April JOLTS job openings data came in weaker than expected, suggesting a cooling labor market. This came on the heels of softer-than-expected ISM Manufacturing PMI and Services PMI data.
– **Fed Rate Cut Expectations**: Investors have started pricing in rate cuts by the U.S. Federal Reserve, possibly beginning as early as September 2024. According to the CME FedWatch Tool, there is now over a 65% probability of at least one cut by the end of the year.
– **Treasury Yields Decline**: Benchmark 10-year Treasury yields have dropped below 4.30%, reducing the attractiveness of the greenback relative to higher-yielding currencies.
– **Dovish Fed Commentary**: Several Federal Reserve officials, including Raphael Bostic and Neel Kashkari, have commented on the need to remain cautious and open to the possibility of easing policy if inflation continues to moderate.
### Canadian Dollar Support
On the Canadian side, there are several factors that have supported the loonie despite mixed domestic data:
– **Rising Crude Oil Prices**: As one of the world’s largest crude exporters, Canada sees its currency benefit from rising oil prices. West Texas Intermediate (WTI) crude recently rebounded to above $74 per barrel, giving strength to the CAD.
– **Hawkish Bank of Canada (BoC)**: While a rate cut from the BoC is still a possible scenario this summer, the market anticipates that the BoC may tread more cautiously than the Fed, especially given
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