The USD/CAD currency pair has recently fallen into an obvious near-term downtrend, depicted by a short-term descending channel the last four weeks. The bad news is that the trend is accelerating. The duo finds it hard to retain profits from previous trading days due to a return of dollar selling pressure. On Tuesday, new supply weighed on the USD/CAD. This was a negative development that softened some of its pronounced bullish tilt, most recently retracting it from a one-week peak at 1.3700.
According to market watchers, the market sentiment for the USD/CAD pair has shifted to favor a bearish outlook – meaning down. If it can’t maintain near-term support at the 1.3645 zone, it may retreat back toward the 1.3600 level. In case of a deeper drop, it could go to the year-to-date low around the 1.3540-1.3535 zone. That would uncover any weaknesses lurking in today’s market dynamic.
The USD/CAD crossed the board overnight. This increase is attributed in part to the short-covering that accompanies an oversold Relative Strength Index (RSI) on a daily chart. Traders are on edge as they await the results of a two-day Federal Open Market Committee (FOMC) meeting. This anticipation could cut short the recovery. This upcoming meeting is an especially important one. Depending on its outcome, it could increase or decrease interest rates and majorly affect the Canadian market tone for CAD.
Analysts are widely watching the U.S. industrial production, which missed expectations with a 0.2% contraction in May. Such underperformance would likely weigh on the USD/CAD pair as the markets react to heightening fears around economic stability. Weaker crude oil prices could dampen the currency-boosting impact of a commodity-linked CAD. Combined, this would pose additional headwinds to the USD/CAD pair.
There’s more than just economic undercurrents influencing the current market landscape. Geopolitical factors are deeply at play. As aerial exchanges between Israel and Iran continue into their sixth day, this plague upon four continents is increasing global tensions and likely to affect risk sentiment. Geopolitical tensions in the Middle East will likely escalate. That would boost safe-haven assets including the U.S. dollar, aiding defense against further USD/CAD losses.
Taking all these together, market participants may view any upside move beyond the 1.3700 level as an opportunity to sell. This is more so the case as this level coincides with the current trend channel’s upper boundary, located around 1.3735-1.3740. Trend-channel support for the USD/CAD pair is at approximately 1.3520. What’s more, the psychological resistance of 1.3500 comes in as a big obstacle.
Hope surrounding the negotiations of a U.S.-Canada trade agreement is pumping optimism into the CAD. This recent development has only increased the uncertainty surrounding the path of the USD/CAD pair. Market participants will be on the lookout for signals from Fed Chair Jerome Powell during the post-meeting press conference. His remarks could provide indispensable clues to what’s next for monetary policy.