The USD/CAD pair continues to trade below the 1.3500 mark as traders anticipate key central bank decisions. The Federal Reserve’s recent dovish stance and potential rate cuts, coupled with the Bank of Canada’s outlook, have influenced the pair’s movement. This technical analysis will explore USD/CAD’s recent price action, key economic data, and trading recommendations.
Key Takeaways
- USD/CAD is trading around 1.3485 following a dip to 1.3420, the lowest level since March 8.
- Federal Reserve’s dovish tone signals potential further rate cuts if inflation eases.
- Bank of Canada (BoC) Governor Tiff Macklem suggests that more rate cuts may be expected as inflation stabilizes near the 2% target.
Technical Analysis
4-Hour Chart Overview
The 4-hour chart shows a strong bearish trend with the USD/CAD price attempting to recover after reaching a new low at 1.3420. Several Break of Structure (BOS) levels have been identified, indicating that the downtrend remains intact. The pair has been trading within a discount zone around 1.3450, which suggests limited upside potential unless a significant reversal occurs.
Key Levels:
- Resistance: 1.3650 (Equilibrium), 1.3600 (Sell Zone)
- Support: 1.3400 (Discount Zone), 1.3450 (Buy Zone)
- Potential Reversal: A close above 1.3600 could indicate a shift in sentiment, while a break below 1.3400 may open the door for further declines.
1-Hour Chart Overview
The 1-hour chart highlights the pair’s consolidation near the 1.3485 level. The High-High (HH) and Low-Low (LL) structures indicate volatility with a slight bullish recovery. However, the overall trend remains bearish with potential selling pressure emerging near the 1.3600 resistance zone.
Key Levels:
- Immediate Resistance: 1.3550
- Immediate Support: 1.3420
- Momentum Indicators: Bearish divergence is seen in the Relative Strength Index (RSI), suggesting a potential for further downside.
Economic Data
The recent economic data points have shown a mix of signals:
- US New Home Sales fell by 4.7% in August, though this was better than expected.
- Federal Reserve’s Officials’ Comments indicate a dovish stance, with potential rate cuts on the horizon if inflation continues to ease.
- Bank of Canada has hinted at further rate cuts as inflation stabilizes, which may weigh on the CAD if implemented.
Trading Recommendation
Given the technical and fundamental outlook, USD/CAD is expected to remain under pressure unless new catalysts emerge. Traders should watch for potential selling opportunities near the 1.3550 resistance level, with a target towards 1.3400. Conversely, a break above 1.3600 could shift momentum, leading to potential buys targeting the 1.3650 zone.
Conclusion
The USD/CAD pair remains in a bearish phase as market participants await clarity on the central banks’ future actions. The upcoming speeches by Fed officials and BoC’s rate decision could provide the needed direction. Until then, traders should remain cautious, monitoring key technical levels and economic indicators.
