Technical Analysis

USD/CAD Price Analysis – Feb 27, 2024

By LonghornFX Technical Analysis
Feb 27, 20244 min

Daily Price Outlook

Despite the Canadian CPI inflation data showing a larger-than-anticipated easing to 2.9% in January, the USD/CAD currency pair continued its downward trajectory, lingering around the 1.3520 level. However, this decline cannot solely be attributed to Canadian economic factors. The weakening of the US dollar has played a significant role in the bearish trend.

The US dollar had initially been on a bullish run, fueled by the Federal Reserve's adoption of a hawkish stance and positive US economic indicators. Nonetheless, this bullish momentum has faded recently as the release of the FOMC minutes revealed concerns among policymakers regarding the potential risks of rapid rate cuts. Hence, the dovish comments from Fed officials further undermined the US dollar, consequently exerting downward pressure on the USD/CAD pair.

On the other hand, crude oil prices increased on Tuesday. However, the rise was driven by concerns about reduced oil supplies due to ongoing disruptions in global shipping and conflicts in the Middle East. The stability in oil prices could support the Canadian dollar and contribute to losses in the USD/CAD pair.

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

On the US front, the Federal Reserve, led by Chairman Jerome Powell, expressed a cautious approach toward lowering interest rates. Powell mentioned that the Fed wants to ensure that inflation consistently reaches the 2% target before considering rate cuts. Additionally, the minutes from the Federal Open Market Committee (FOMC) meeting revealed concerns among some policymakers about the potential risks associated with reducing interest rates too quickly.

Hence, these dovish remarks are bearish for the US dollar because they indicate a cautious approach to lowering interest rates, potentially reducing its attractiveness to investors seeking higher returns.

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

On the Canadian side, inflation data for January showed a lower increase than expected, reaching 2.9%. This unexpected data has led to speculation that the Bank of Canada might consider lowering interest rates sooner than previously anticipated. While most analysts expect the central bank to maintain interest rates at 5.0% during its upcoming meeting on March 6th, the likelihood of a rate cut at the April meeting has increased to 58% following the release of the Consumer Price Index (CPI) report. This shift in expectations suggests that the central bank may be more inclined to take action to stimulate the economy in response to lower-than-expected inflation.

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

Looking ahead, investors are keeping their eyes on upcoming economic indicators like US Durable Goods Orders, Consumer Confidence, and the Richmond Fed Manufacturing Index, along with remarks from Fed's Michael Barr.

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

USD/CAD - Technical Analysis

The USD/CAD pair has exhibited a modest uptick of 0.01%, positioning itself at 1.35066 as of February 27. This minor increase underscores a period of consolidation within the forex market, with technical indicators and price movements suggesting a mix of stability and potential volatility.

Key technical levels frame the current landscape for USD/CAD. The pivot point at 1.3454 acts as a foundational benchmark, with immediate resistance observed at 1.3492. Further resistance levels at 1.3551 and 1.3589 delineate potential ceilings for price ascensions. On the flip side, support levels at 1.3403, 1.3357, and 1.3319 serve as critical junctures where buying interest may resurface to bolster the pair.

The Relative Strength Index (RSI) at 51 indicates a market in equilibrium, hinting at a balanced dynamic between buyers and sellers. The Moving Average Convergence Divergence (MACD) presents a value of 0.00014 against a signal of 0.00032, suggesting a cautious market sentiment with potential for directional shifts. The 50-day Exponential Moving Average (EMA) at 1.3506 closely mirrors the current price, reinforcing the state of consolidation.

A symmetrical triangle pattern observed on the chart signals a consolidation phase for the Canadian dollar, with a bearish engulfing pattern and a cross below the 50 EMA potentially indicating an impending selling trend. This technical setup suggests a cautiously bearish outlook in the short term.



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