Title: USD/CAD Uptrend Slows But Maintains Bullish Course: Technical and Fundamental Outlook
Original article by: FxWirePro, via EconoTimes
The USD/CAD currency pair has been demonstrating a broadly bullish trend in recent weeks, driven by a combination of diverging monetary policies between the U.S. Federal Reserve and the Bank of Canada, fluctuating oil prices, and broader macroeconomic indicators. However, recent trading patterns reveal that the uptrend is showing signs of fatigue despite remaining structurally intact on the bullish side. This article delves into the technical setup, fundamental catalysts, and projections for USD/CAD based on recent economic data and market sentiment.
Overview of USD/CAD Movement
The USD/CAD pair has been firmly within an upward trajectory since the beginning of 2024. The greenback has gained strength over the Canadian dollar due to persistent inflation in the United States, leading to expectations of prolonged higher interest rates by the Federal Reserve. Meanwhile, the Bank of Canada has shown more flexibility, even hinting at potential rate cuts due to softer domestic economic data.
Key Influencing Factors:
Several factors have contributed to the overall direction of the USD/CAD pair:
1. Diverging monetary policy:
– The Federal Reserve has maintained a hawkish stance, signaling that interest rates will remain elevated until inflation recedes sustainably toward the 2% target.
– Conversely, the Bank of Canada, while cautious, has adopted a more dovish tone amid slower GDP growth and soft labor market numbers.
2. Oil price fluctuations:
– As a major oil exporter, Canada’s currency is highly sensitive to movements in global crude prices.
– WTI crude oil prices have weakened recently, reflecting demand uncertainties and rising inventories, subsequently weighing down the Canadian dollar.
3. Economic indicators:
– Strong U.S. data points, such as durable goods orders, manufacturing PMI, and lower initial jobless claims, have reinforced the narrative of U.S. economic resilience.
– Canadian GDP recently underwhelmed, and soft retail sales data further support the notion of a cooling Canadian economy.
4. U.S. Dollar Index (DXY):
– The DXY, a measure of the U.S. dollar against a basket of major currencies, remains supported above the 104.00 mark.
– Positive U.S. macroeconomic data and investor risk aversion lend strength to the dollar.
Technical Analysis
From a technical standpoint, the USD/CAD pair has entered a consolidation phase after reaching multi-month highs. The uptrend remains valid but investors are watching closely for a potential pullback or correction.
Daily Chart Observations:
– The pair is trading above the 50-day and 200-day exponential moving averages (EMAs), confirming a bullish structure.
– Momentum indicators, such as the Relative Strength Index (RSI), are hovering just below the overbought territory around 64-68, signaling a temporary loss in upward momentum.
– The Moving Average Convergence Divergence (MACD) indicator continues to show a bullish bias but with narrowing histogram bars, suggesting diminishing momentum.
– Key support zone remains around 1.3600-1.3630 levels.
– Resistance is faced near the psychological 1.3750 level, followed by 1.3800.
4-Hour Chart Insights:
– Recent price action suggests a potential double top near the 1.3745 level, indicating possible short-term selling pressure.
– The 4-hour RSI is slipping back toward neutral territory, hinting at consolidation or a minor retracement.
– Immediate support is noticed near 1.3660, with a break below possibly retesting the 1.3600 handle.
Bullish Bias Remains:
Despite current signs of sideways movement and waning momentum, the overall trend favors further upside in the medium term, barring an unexpected change in fundamentals or a dramatic surge in oil prices.
Market Sentiment and Positioning
According to weekly
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