Technical Analysis

USD/CAD Price Analysis – July 02, 2024

By LonghornFX Technical Analysis
Jul 2, 20244 min

Daily Price Outlook

During the early European trading session, the USD/CAD currency pair maintained an upward trajectory, hovering around the 1.3743 level and peaking at 1.3756 intraday. This bullish movement was primarily driven by a stronger US dollar, bolstered by higher US Treasury bond yields.

Meanwhile, the Bank of Canada (BoC) cut interest rates to 0.75% on June 5, becoming the first G7 nation to ease monetary policy in the current cycle. This decision exerted downward pressure on the USD/CAD pair.

In contrast, oil prices remained relatively stable on Tuesday, holding close to the two-month highs reached in the previous session.

Market sentiment was buoyed by expectations of increased fuel demand during the summer travel season and speculation about potential US interest rate cuts that could stimulate economic growth. These factors supported the Canadian dollar and helped mitigate losses for the USD/CAD pair.

USD/CAD Pair Rose Amid Fed Rate Cut Expectations and Economic Data

On the US front, the USD/CAD pair's rise is underpinned by a robust US dollar and higher Treasury bond yields. Investor attention is also keenly focused on an upcoming speech by Federal Reserve Chairman Jerome Powell.

However, weaker-than-expected US ISM Manufacturing PMI figures for June have reinforced expectations that the Fed might implement an interest rate cut in September.

Currently, traders are pricing in a 68% probability of a rate reduction, a marked increase from the previous month according to the CME FedWatch tool. Despite mixed economic indicators from the US, the Federal Reserve's cautious stance continues to bolster the USD in the near term.

Therefore, the USD/CAD pair is seeing upward pressure due to a stronger US dollar and higher bond yields, compounded by expectations of a Fed rate cut following weaker US manufacturing data, supporting the dollar despite economic uncertainties.

Impact of Bank of Canada Rate Cut on USD/CAD Pair

On the CAD front, the Bank of Canada (BoC) lowered interest rates to 0.75% on June 5, making it the first G7 country to initiate monetary easing in this cycle. BoC Governor Tiff Macklem indicated that while Canada has room for further rate reductions, they must carefully consider their alignment with the US Federal Reserve's monetary policies.

However, the BoC's decision surprised some market participants due to its dovish stance, which hinted at potential future rate cuts, albeit not necessarily in a linear progression.

Douglas Porter, Chief Economist at BMO Economics, highlighted that future rate changes will depend on signs that inflation pressures are easing, indicating a careful approach to further monetary policy adjustments.

Therefore, the BoC's rate cut and dovish stance have weighed on the CAD, weakening it against the USD as investors assess diverging monetary policies between the BoC and the Fed.

USD/CAD Price Chart - Source: Tradingview
USD/CAD Price Chart - Source: Tradingview

USD/CAD - Technical Analysis

The USD/CAD pair is currently trading at $1.37348, showing a slight increase of 0.02% for the day. On the 4-hour chart, the pivot point is positioned at $1.3754, serving as a crucial level for traders to monitor.

Immediate resistance is located at $1.3780, with higher resistance levels at $1.3805 and $1.3833. On the downside, immediate support is seen at $1.3712, followed by support at $1.3688 and $1.3655.

Technical indicators present a mixed picture. The Relative Strength Index (RSI) is at 60, suggesting mild bullish momentum. Meanwhile, the 50-day Exponential Moving Average (EMA) is at $1.3691, providing a supportive base just below the current price level.

The market sentiment around USD/CAD indicates a cautious outlook, with traders closely watching for any economic data or market developments that could influence direction. The pair has shown resilience above the pivot point, but the immediate resistance at $1.3780 remains a significant barrier.

Should the price break above this level, it could indicate a stronger bullish trend. Conversely, a decline below the immediate support at $1.3712 may suggest further downside potential.

In conclusion, a strategic approach for traders would be to consider selling USD/CAD below $1.37544 with a take profit target at $1.37115 and a stop loss at $1.37893.

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