The USD/CAD currency pair has recently fallen sharply in value, continuing its former rejection around the 1.3800 level. On Tuesday, the pair saw more follow-through selling for the second consecutive day. It remains under the 200-day Exponential Moving Average (EMA), now just over 1.3900. This bearish sentiment has applied downward pressure on the USD/CAD pair. Spot prices have continued to slide throughout the early European session.
As things stand, USD/CAD is trading slightly above the 1.3730 vicinity, its lowest point since September 17. The recent tumble has raised concerns about what comes next for the currency pair. It keeps a generally bearish bias, which is even more worrisome. Market participants are intently awaiting key technical indicators that would be clearly bearish or bullish to indicate a turn.
Technical Analysis and Market Indicators
This latest USD/CAD decline is the result of a double-top pattern that’s been developing on the daily chart. Financial markets have been on edge over this potential development. This pattern is a classic precursor to a reversal in price action, meaning more bearishness could be on the horizon. If the daily close goes below the rising trend line, it would indicate a more severe drop. This change would more easily allow the ongoing bearish trend to continue much further.
From a technical perspective, USD/CAD’s RSI is at 31. This indicates that the currency pair is nearing a state of overselling. This announcement could be the news that will finally halt the decades-long decline. Traders may begin to view the deepening discounts as excellent buying opportunities. A return above the mean would likely trigger a more widespread recovery. It’s this last issue that traders will be watching most closely.
The second most important factor driving USD/CAD dynamics is the US economic health. Major US economic data releases have historically caused strength or weakness in the currency pair. Each of these releases is highly volatile and they move prices with extreme large directions. As investors continue to wait for more macroeconomic data, they will be searching for signs of strength or weakness in economic activities.
The Impact of Oil Prices on CAD
Oil prices have a major impact on the value of the Canadian dollar (CAD). The health of the US constituencies also plays a role. Being the largest of Canada’s exports, changes in oil prices immediately influence the value of CAD. Recent trends in global oil markets have made trading USD/CAD even more complex.
The perfect storm USD/CAD fundamentals go well beyond US economic indicators. They depend on commodity prices and geopolitical consideration that drive oil supply and demand. Traders will be watching closely to see how these externalities balance out CAD’s impressive strength versus USD.
Price is approaching important support on the USD/CAD pair. Analysts have found an upward trend-line support that runs from the 1.3540 level, the year-to-date low set in July. This point serves as something of a safety net for traders. They are fully insulated from any possible upward movement in USD/CAD.
Future Outlook and Potential Scenarios
Moving forward, the first places market participants will look as they try to gauge a change in momentum will be some key technical indicators. With this in mind, a bullish crossover in MACD along with continued traffic above the zero level can hint at an upside transition for USD/CAD. This situation would be bad news for traders who have been set up for a bounce after the recent down draft.
If USD/CAD fails to build support around 1.3730, it will end up closing underneath the rising trend line. This has the potential to set off even more selling pressure. In that event, traders will probably begin to focus on building long positions at deeper levels that are consistent with prior support areas.