USD/CAD Price Analysis – Aug 06, 2024
Daily Price Outlook
During the European trading session, the USD/CAD currency pair maintained its upward trend, remaining well-bid around the 1.3840 level and hitting an intra-day high of 1.3857.
This upward trend can be attributed to sliding crude oil prices, which undermine the Loonie and lend support amid a stronger USD. However, dovish Fed expectations and the risk-on mood might cap gains for the USD and the pair.
Meanwhile, the concerns about an economic downturn in China and softer US macro data suggest that the world's largest economy is slowing faster than initially expected.
This is likely to dent fuel demand and drag crude oil prices lower for the fourth straight day, which, in turn, undermines demand for the commodity-linked Loonie.
USD Gains and Fed Expectations Impacting USD/CAD Outlook
On the USD front, the broad-based US dollar (USD) gained traction due to increased demand and rising US Treasury bond yields, which supported the USD/CAD pair.
However, changes in global risk sentiment and expectations of a dovish Federal Reserve might limit further gains for the USD.
The market is currently anticipating a nearly 100% chance that the Fed will cut interest rates by 50 basis points in September.
This anticipation could cap further increases in US bond yields and the dollar, making USD/CAD bulls cautious unless significant economic news from the US or Canada emerges.
Impact of Oil Prices and Geopolitical Concerns on the USD/CAD Pair
On the other hand, worries about a potential economic downturn in China, combined with weaker-than-expected US economic data, have led to a decline in crude oil prices for the fourth consecutive day.
This drop in oil prices is also affecting the Canadian dollar (Loonie), which is closely tied to oil.
Meanwhile, ongoing concerns about a possible broader conflict in the Middle East could limit further declines in oil prices.
Given these factors, it is wise to wait for stronger signs of a rebound before expecting the USD/CAD pair to continue its recent upward trend.
Therefore, the decline in Crude Oil prices and concerns about China's economy and Middle East conflict are pressuring the Canadian dollar. This may limit the USD/CAD pair's upward momentum until conditions improve.
USD/CAD - Technical Analysis
The USD/CAD pair is currently trading at $1.38366, down 0.11%, reflecting a mild bearish sentiment in the market. The currency pair remains just below the pivot point at $1.3859, indicating a struggle to gain upward traction.
Immediate resistance is situated at $1.3864, with further hurdles at $1.3908 and $1.3946. Overcoming these resistance levels is crucial for the USD/CAD to shift back to a bullish trajectory.
On the support side, immediate levels are at $1.3781, followed by $1.3745 and $1.3706. These support levels are pivotal for traders looking to manage risk, as a fall below them could signal continued downward pressure.
The 50-day Exponential Moving Average (EMA) is at $1.3839, which is slightly above the current price and could act as a short-term resistance point.
This technical indicator highlights the cautious sentiment in the market, as traders await stronger signals to determine the next directional move.
The Relative Strength Index (RSI) is at 48, suggesting a neutral stance in the market. This balanced reading implies that the pair is neither overbought nor oversold, presenting an opportunity for traders to capitalize on potential breakout or breakdown scenarios.
Given the current setup, a strategic entry point would be to buy below $1.38152, with a take-profit target of $1.38811 and a stop-loss at $1.37805.
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