Technical Analysis

USD/CAD Price Analysis – Nov 21, 2023

By LonghornFX Technical Analysis
Nov 21, 20234 min

Daily Price Outlook

During the European session on Tuesday, the USD/CAD currency pair struggled to stop its downward trend and remained well offered around the 1.3710 level. However, the decline in the pair can be attributed to a combination of factors. It should be noted that the Canadian Dollar gained upward momentum against the Greenback due to higher Crude Oil prices, exerting downward pressure on the USD/CAD pair. Meanwhile, the bearish trend in the US dollar, driven by a dovish stance from the Federal Reserve (Fed), was seen as another key factor contributing to the pair's decline.

WTI Crude Oil Prices and OPEC Speculation Impact on CAD/USD Dynamics

West Texas Intermediate (WTI) is trading at around $77.50 per barrel. However, the market is signaling the possibility that the Organization of the Petroleum Exporting Countries (OPEC) might choose for further oil production cuts in their upcoming meeting on November 26. Thus, this speculation is exerting a positive impact on the Canadian Dollar as the higher prices of crude oil boost the CAD price and kept the USD/CAD pair lower position.

Potential Impact of Lower Inflation on Bank of Canada and USD/CAD Pair

Furthermore, Canada is preparing for the release of its Consumer Price Index (CPI) data on Tuesday. Analysts anticipate a year-on-year inflation rate for October to decrease to 3.2% from the previous 3.8%. If this happens, it could give the Bank of Canada (BoC) with some flexibility to maintain its overnight rate target at 5.0% in the upcoming December meeting. The central bank has explicitly stated that its rate decisions will be guided by economic indicators, and a lower inflation rate may align with their strategy to maintain stability.

Therefore, the lower inflation rate in Canada will ease pressure on the Bank of Canada to raise interest rates. This could potentially weaken the Canadian Dollar against the US Dollar, impacting the USD/CAD pair.

USD Faces Challenges Amidst Improved Risk Appetite and Fed Caution

Apart from these indicators, the US Dollar is facing challenges due to the expectations that the Federal Reserve (Fed) will take a more dovish approach. Last week's release of softer inflation figures, with the Consumer Price Index (CPI) slowing to 3.2% (YoY) and core CPI dropping to 4.0% (YoY), has made investors rethink the chances of a rate hike in December. Some are even considering the possibility of rate cuts in 2024.

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

USD/CAD - Technical Analysis

As we delve into the technical stratum of the USD/CAD on November 21, we see the pair ebbing slightly by 0.1%, setting the currency at 1.37104. This minor retreat is set against a larger canvas where investors' vigilance is trained on the Bank of Canada's monetary policy direction and oil price fluctuations, which remain cardinal to the loonie's fortunes.

At the helm of key price points, the USD/CAD grapples with a pivot point situated at 1.3633, suggesting a tentative balance in market forces. Resistance waits patiently at 1.3742, with subsequent battlements at 1.3824 and 1.3929, potentially halting any bullish advances. Support, on the contrary, gathers at 1.3551, with further reinforcements at 1.3443 and 1.3340, ready to cushion any southward drifts.

The Relative Strength Index (RSI) rests at 44, nestled in a neutral zone, yet tiptoeing near the bearish territory, signaling a market in contemplation rather than conviction. The MACD, a mere hairbreadth above its signal, whispers the potential for momentum, albeit with a cautious undertone. The proximity of the price to the 50-day EMA at 1.3718 amplifies this sentiment of hesitation.

An upward channel breakout, previously observed, now seems to question its own validity as the pair skirts below the crucial 1.3738 mark. This inflection point is now the fulcrum upon which the near-term market sentiment pivots.

Conclusively, the technical prognosis for the USD/CAD is a cautious one, with a bearish undercurrent below 1.3738. As traders cast their nets wide for the upcoming sessions, the looming resistance at 1.3742 stands as a testament to the pair's resolve, while the currency's movements await further impetus from economic data and commodity price shifts.

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