The USD/CAD exchange rate has climbed to a multi-week high recently. It faltered on keeping that momentum, a fatal combination of uniquely Parisian market factors. The USD/CAD cross has retraced from mid-1.3900s. Even earlier in the trading session, it was at a three-week high. After their recent surge, the US Dollar has undergone a strong correction, hitting its highest levels since April 10. Therefore, we are seeing a modest pullback in reaction to this direction.
One of the most significant drivers behind the current winds is the expectation that US-Canada trade negotiations are on the horizon. Even still, these discussions have led to an air of optimism for a potential compromise deal. This would risk further bolstering the commodity-linked Canadian Dollar, or Loonie. Now is an especially tricky time to trade the USD/CAD pair. Oscillators on the daily chart have yet to confirm any positive bias, which shows lack of conviction in the market.
The other factor influencing the USD/CAD pair’s recent movement is technical levels. Following a solid intraday upward swing, the pair ended up falling short around the 23.6% Fibonacci retracement barrier. This bar represents the drop we saw from March through May. For bullish traders, a move above the 1.3940-1.3945 area—a recent retracement level—is necessary for a sustained upward move and to regain the underlying bullish momentum.
If the USD/CAD pair resumes selling off through the 1.3880 area, that would likely lead to a sharp decline. Such a development would likely take the couple down to intermediate support levels 1.3850 to 1.3845. This possible drop would mark an important moment of truth for prevailing market optimism and underlying technical fortitude.
The current jump in the price of crude oil is having a pronounced effect on the USD/CAD trading pair. Oil prices have jumped to their highest levels in more than a week. Canada is one of the world’s largest crude oil exporters. Similarly, when oil prices increase, they raise the value of the Loonie, restricting how far USD/CAD can rise.
Near-term, the market is still betting on a lot of what-ifs. On the downside, a recent breakout above the 1.3900 key resistance level — the upper limit of a three-week range — has the potential to generate powerful bullish momentum among USD/CAD traders. Taking into perspective all of the above, this development is good given expectations for week strengthening gains for the currency pair though seen volatile at present.
If USD/CAD does break higher, look for targets in the 1.4100 vicinity. Further upside targets would be the 1.4140 region, which is coincident with the 50% Fibonacci retracement. A clear break above the present resistance levels is required for those moves to occur. If realized, this advance has the potential to ignite a sustained new bull market ushering in even greater gains.