Technical Analysis

USD/CAD Price Analysis – Feb 06, 2024

By LonghornFX Technical Analysis
Feb 6, 20244 min

Daily Price Outlook 

Despite the expected interest rate cut by the Bank of Canada, the USD/CAD currency pair failed to stop its downward trend and remained well offered around the 1.3520 level. However, the reason for its downward trend can be associated with sluggish US dollar movement. The US dollar was gaining momentum and hit a three-month high recently, supported by the Federal Reserve adopting a hawkish stance and upbeat US economic data. But recently, it started losing its traction, and the reason is unknown right now. Hence, the mixed performance of the US dollar kept the USD/CAD currency pair under pressure.

On the other hand, oil prices remained firm at around $72.95 on Tuesday. This uptrend was driven by the US Dollar's modest decline and ongoing geopolitical tensions in the Middle East and Russia's actions in Ukraine, which raised concerns about oil supply disruptions. The stability in oil prices could support the Canadian dollar and contributed to losses in the USD/CAD pair.

Fed Plans for Interest Rate Cuts and Potential Impact on USD/CAD Pair

Federal Reserve Chair Jerome Powell announced plans to lower interest rates three times this year, potentially starting in May. However, the probability of a rate cut in March has fallen to 15%, down from 38% previously. This shift towards keeping rates higher for longer could strengthen the US dollar, which may benefit the USD/CAD pair.

Anticipated Bank of Canada Rate Cuts and Impact on USD/CAD Pair

According to a survey conducted by the central bank, investors anticipate that the Bank of Canada (BoC) will commence reducing its benchmark interest rate from its 22-year high of 5% in April. Market projections suggest that by the ending of 2024, the median forecast for the policy rate is expected to decline to 4%, consistent with earlier forecasts made in November.

Therefore, the anticipated rate cuts by the Bank of Canada may weaken the Canadian dollar, potentially causing the USD/CAD currency pair to rise as the US dollar gains strength.

Upcoming Economic Data Releases Impacting CAD Currency Pairs

Investors will keep thier eyes on Canadian Building Permits and Ivey PMI data on Tuesday, with a focus on Friday's labor market report, including the Unemployment Rate.

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

USD/CAD - Technical Analysis

The USD/CAD pair has seen a marginal descent of 0.14% to $1.35227, entering the North American session on a slightly softer note. In the 4-hour chart, a minor pullback from recent highs has brought traders' focus to key technical levels that could dictate short-term price action.

The pivot point stands at $1.3436, a level that may underpin the currency pair's movements today. Resistance levels have materialized at $1.3510, followed by $1.3551 and $1.3630, each presenting a barrier to upside progression. Conversely, immediate support falls at $1.3393, with additional floors at $1.3316 and $1.3276 possibly providing a buffer against further depreciation.

Technical indicators such as the Relative Strength Index (RSI) show a reading of 65, which, while on the higher side, doesn't yet suggest overbought conditions. The Moving Average Convergence Divergence (MACD) presents a nuanced picture; with a value of 0.001 and a signal of 0.003, it indicates the potential for a slight bearish shift as the MACD line is below the signal line.

The 50-day Exponential Moving Average (EMA) is currently at $1.3501, just below the current price, suggesting that the pair is testing a critical juncture where bearish and bullish sentiments are contested.

Concluding this technical snapshot, the USD/CAD's immediate trend leans towards a neutral to bearish bias. Considering this, a sell limit order at $1.35419 could be strategic, with a take profit objective set at $1.34487 and a stop loss at $1.36054 to mitigate potential upside risks.

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