The USD/CAD currency pair is still under heavy pressure. It attempts to maintain its progress beyond the 1.3800 level after recovering from the 1.3785 area overnight. This drop constitutes the fourth straight day of negative bias for the pair, putting doubt on its short-term prospects. Traders are currently looking forward to the US Personal Consumption Expenditures (PCE) Price Index. We believe this key economic indicator has the power to make a meaningful impact on market dynamics.
Even after an impressive recovery shift, USD/CAD’s inability to defend the current bullish push has turned investors uneasy. The duo now trades under key technical levels. It has broken below the 200-period Exponential Moving Average (EMA) on the 4-hour chart, which indicates a bearish trend. With important economic data on the horizon, all eyes are on how these elements might lay the groundwork for the currency pair’s future trajectory.
Technical Analysis Highlights
The Fibonacci retracement levels are key support and resistance levels that traders are watching closely. The 50% Fibonacci retracement from the December-January upswing is at 1.3785, with the 38.2% level providing near-term support. Therefore, holding above this 38.2% retracement will be important in order to maintain a potentially shallow pullback. If USD/CAD declines through this support level, it may expose the larger 50% retracement at 1.3787. That makes it even more susceptible to another drop.
USD/CAD is now trading comfortably above the 1.3800 level. Its recent price action below the 200-period EMA suggests a change in momentum. The Relative Strength Index (RSI) is currently at 43 which suggests that it is bouncing back from the oversold region. That being said, as long as the RSI stays below the 50 level, upside potential is limited in the short term.
Market Sentiment and Economic Indicators
Widening sentiment of the market towards USD/CAD has largely been dictated by macro economic developments and expectations leading up to this week’s reports. We expect the PCE Price Index to be released later today. It’s one of the most important trends of core inflation in the United States. A much stronger-than-expected reading would likely help the US dollar to strengthen and further complicate the Canadian dollar’s position against it.
Market participants are waiting to get a signal from the Moving Average Convergence Divergence (MACD) indicator. In order for USD/CAD to exhibit robust bullish momentum, the MACD needs to climb above zero. The bottom line with smart policy, there is real cause for hope. Make no mistake, great obstacles still lie in wait.
Immediate Support Levels
Immediate support is found at 1.3822, a level which can offer some buffer from additional downward moves. If this support can remain, it should provide a launching point for a comeback back to much higher levels. If this support level is broken, the selling pressure might increase drastically. This would make the 50% retracement level at 1.3787 a technically important level that traders will keep their eye on.
As market participants navigate through these technical levels and await economic data releases, volatility in USD/CAD is expected to continue. The combination of economic fundamentals and technical analysis would be key in deciding the pair’s next move.