Technical Analysis

USD/CAD Price Analysis – Dec 26, 2023

By LonghornFX Technical Analysis
Dec 26, 20234 min

Daily Price Outlook

Despite the bearish US dollar and higher crude oil prices, the USD/CAD currency pair prolonged its upward trend and remained well bid around above 1.3260 due to the ongoing signs of economic slowdown in Canadian economy. It is worth noting that the Canadian Dollar is facing challenges in attracting buyers due to ongoing signs of an economic slowdown. The latest economic data reveals that the monthly Gross Domestic Product (GDP) of Canada has shown no growth for the fourth consecutive reporting period, remaining flat at 0.0% in October. This follows a downward revision of September's GDP from 0.1% to flat.

Impact of Weaker-than-Expected US Inflation on Fed Rate Hike Expectations

Apart from this, the recent data on US spending suggests that inflation is not as high as expected. This has led people to think that the Federal Reserve might lower interest rates more often and by a larger amount in 2024. The key inflation measure, called the Core PCE Price Index, was 3.2% for the year through November, a bit lower than the predicted 3.3% and down from October.

Investors are now betting that the Federal Reserve will make bigger interest rate cuts next year than the Fed itself has predicted. Money markets indicate potential cuts of over 160 basis points through 2024, compared to the Fed's forecast of 75 basis points by the end of next December.

Therefore, the softer-than-expected US inflation may weaken the USD against the CAD, as it fuels expectations of more frequent Fed rate hikes in 2024.

Geopolitical Tensions and Fed Rate Cut Expectations Drive WTI Crude Oil Prices

WTI Crude oil prices edged up on Tuesday due to heightened geopolitical tensions in the Middle East and optimism about potential interest rate cuts by the U.S. Federal Reserve. Investors are optimistic that rate cuts will spur global economic growth and increase demand for oil. The recent rebound in oil prices is also attributed to concerns about conflict in the Red Sea.

However, the announcement of the resumption of shipping routes by Maersk has eased some supply worries. Furthermore, the expectations of Fed interest rate cuts in response to lower-than-targeted inflation have further supported oil prices, creating a positive outlook for the market.

Therefore, the higher crude oil prices tend to boost the Canadian dollar and may limit some of the gains of the USD/CAD pair.

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

USD/CAD - Technical Analysis 

In the fluctuating world of forex trading, the USD/CAD pair presents a nuanced picture as it navigates through various economic pressures and market sentiments. As of December 26, the pair is trading at 1.32527, marking a slight decrease of 0.12%. This movement reflects the ongoing tug-of-war between the US and Canadian economies and their respective monetary policies.

The pair's pivot point is set at 1.3111, acting as a critical marker in its price movement. The immediate resistance is found at 1.3189, with further resistance levels at 1.3296 and 1.3378. These points represent potential barriers that the pair might face in its upward journey.

On the downside, the immediate support level lies at 1.2996, followed by subsequent supports at 1.2889 and 1.2778. These levels are essential in determining the pair's stability and potential rebound during a downturn.

The Relative Strength Index (RSI) for USD/CAD is currently at 28, indicating that the pair might be in oversold territory. This suggests a potential rebound or stabilization in the near future.

The Moving Average Convergence Divergence (MACD) stands at -0.00021, just below its signal of -0.00364, hinting at a bearish sentiment in the short term.

Furthermore, the pair's current price is below its 50-Day Exponential Moving Average (EMA) of 1.3274, confirming the bearish trend.

The USD/CAD pair shows a breakout from the upward channel, suggesting a shift in momentum that could lead to a buying trend if sustained.

The overall trend for USD/CAD is currently bearish, below the 1.32900 mark. However, there is potential for change if the pair tests and breaks through the resistance levels in the coming days.

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