Technical Analysis

USD/CAD Price Analysis – May 14, 2024

By LonghornFX Technical Analysis
May 14, 20244 min

Daily Price Outlook

During the European trading session, the USD/CAD currency pair has maintained its upward rally and remained well bid around 1.3668 level, hitting the intra-day high of 1.3685 level.

However, the bullish performance of the USD/CAD pair was driven by a combination of factors, including a stronger US dollar supported by a hawkish Fed stance and the lower crude oil prices. Thus, the decline in the crude oil price undermined the commodity-linked Canadian dollar and contributed to the USD/CAD pair gains.

Stronger US Dollar and Hawkish Fed Stance

However, the bullish performance of USD/CAD can be attributed to the strength of the US dollar. Federal Reserve officials have been spoken about adopting a hawkish stance towards monetary policy, emphasizing the necessity of maintaining higher interest rates for an extended period to combat inflationary pressures.

This hawkish stance has fueled investor confidence in the US dollar, consequently exerting upward pressure on the USD/CAD pair.

On the data front, the University of Michigan Consumer Sentiment Index fell to 67.4 in May, its lowest level in six months, below the expected 76 reading. Additionally, the UoM 5-year Consumer Inflation Expectation increased to 3.1%, reaching a six-month high compared to the previous 3.0%.

Hence, the decrease in consumer sentiment suggests lower confidence in the economy, which prompted the Fed to consider tightening monetary policy to stabilize the situation.

Lower Crude Oil Price Weighs on the Commodity-Linked Canadian Dollar (CAD)

Another factor impacting the USD/CAD pair's bullish trend is the decline in crude oil prices, which affects the commodity-linked Canadian dollar (CAD) because Canada is a major exporter of oil to the United States.

Therefore, the decline in crude oil prices has exerted downward pressure on the CAD, counteracting some of its underlying strengths. Even though there is positive Canadian employment data for April, which could theoretically bolster the CAD, the dominant influence of oil prices continues to be a major factor shaping the currency's performance.

Looking ahead, market participants will closely monitor key economic indicators, such as the US Producer Price Index (PPI) and the Consumer Price Index (CPI). Additionally, developments in global oil markets will continue to play a crucial role in shaping the trajectory of the USD/CAD currency pair.

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

USD/CAD - Technical Analysis

USD/CAD is trading at $1.36768, up 0.08% in the latest session. The 4-hour chart shows a pivot point at $1.3733, a key level for traders to watch. Immediate resistance is just above this pivot at $1.3735, followed by additional resistance levels at $1.3788 and $1.3836. On the downside, immediate support is seen at $1.3614, with further support levels at $1.3562 and $1.3516.

The technical indicators offer further insights into the market dynamics. The Relative Strength Index (RSI) is currently at 46, suggesting a neutral sentiment with no immediate signs of being overbought or oversold.

The 50-day Exponential Moving Average (EMA) stands at $1.3690, slightly above the current price, indicating a potential resistance level that could cap upward movements in the short term.

The trading strategy for USD/CAD involves an entry price for buying above $1.36697, targeting a take-profit level at $1.37334 and a stop loss at $1.36275.

This strategy takes into account the likelihood of the pair testing the immediate resistance level at $1.3735, while also managing risk effectively with a stop loss below the recent support level.

A break above the immediate resistance at $1.3735 could signal further bullish momentum, driving prices towards the next resistance levels at $1.3788 and $1.3836. Conversely, if the price falls below the immediate support at $1.3614, the next support levels at $1.3562 and $1.3516 will be critical for assessing potential downside risks.

Overall, the outlook for USD/CAD remains cautiously bullish above the entry price of $1.36697.

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