**USD/CAD Price Forecast: Drops Below 1.3900 Mark, Eyeing Key Moving Averages**
*By Raul Manliguis for FXStreet | Enhanced and expanded by AI for educational purposes*
As the USD/CAD currency pair begins the week, it has encountered a notable pullback, slipping beneath the critical 1.3900 level. This decline points to a shift in market sentiment as the pair moves closer to its short-term and long-term moving averages. Various macroeconomic and technical factors are influencing this development, from changes in US Federal Reserve policy expectations to fluctuations in crude oil prices, both of which heavily impact the USD/CAD exchange rate.
This article examines the latest trends affecting the USD/CAD pair, including technical chart formations, relevant economic data releases, and potential developments on the horizon. By analyzing these factors, traders can gain a clearer picture of the market environment and anticipate possible support or resistance levels.
## Latest Price Action: USD/CAD Weakens Below Key Resistance
The US dollar has seen broad-based weakness following dovish tones from Federal Reserve officials and softer-than-expected US inflation data. This has led the USD/CAD pair to retreat after briefly testing psychological resistance at the 1.3900 mark. On Tuesday, January 16, 2024, the pair was last seen trading around the 1.3680–1.3720 zone, indicating a significant downward correction over recent sessions.
Key developments include:
– USD/CAD dropped significantly from multi-month highs near 1.3900 as selling pressure mounted amid US dollar weakness.
– The pair is now approaching its 50-day and 100-day Simple Moving Averages (SMAs), offering potential support zones at approximately 1.3670–1.3700.
– A prolonged break below these levels might hint at a deeper correction toward 1.3600 or possibly lower.
## Technical Analysis: Price Patterns and Key Indicators
From a technical perspective, USD/CAD has entered a corrective phase after several weeks of bullish upside that pushed the pair close to yearly highs. However, the pullback signifies that buyers are beginning to lose momentum, and current technical indicators are offering mixed signals.
### Moving Averages:
– The 20-day SMA has been steadily upward, but prices breaking below this level signal near-term bearish momentum.
– The 50-day SMA is currently situated around 1.3680, acting as a potential short-term support.
– The 100-day SMA is lower around the 1.3600 handle and will serve as a critical inflection point if selling acceleration continues.
– Holding above the 200-day SMA, which currently lies around the 1.3430 area, maintains a broader bullish outlook on higher timeframes.
### RSI and MACD Indicators:
– The Relative Strength Index (RSI) has declined from overbought territory (~70) to levels around 50–55, reflecting diminishing bullish strength.
– The MACD (Moving Average Convergence Divergence) histogram has started to print negative bars, possibly indicating that bearish momentum is picking up.
### Chart Patterns:
– A possible double-top formation near 1.3900 implies that the USD/CAD pair might have peaked, with a downside target near 1.3500 if confirmed.
– Horizontal support lies at 1.3660 and extends to the previous October highs around 1.3600.
– On the upside, immediate resistance is seen back at 1.3800, followed by the previous peak at 1.3900.
## Fundamental Factors Driving USD/CAD
The USD/CAD exchange rate is highly sensitive to relative interest rate expectations between the US and Canada, energy prices (particularly crude oil), and broader risk sentiment in global markets.
### 1. US Economic Outlook and Federal Reserve Policy
– Recent US consumer price index (CPI) data reported lower-than-expected inflation, leading market participants to believe the Fed may initiate rate cuts
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