Technical Analysis

USD/CAD Price Analysis – June 4, 2024

By LonghornFX Technical Analysis
Jun 4, 20244 min

Daily Price Outlook

During the European trading session, the USD/CAD currency pair has maintained its upward trend and remained well-bid around the 1.3676 level, hitting the intra-day high of 1.3700.

However, this bullish trend can be attributed to several factors, including the renewed strength of the US dollar and market expectations for a rate cut by the Bank of Canada. Moving on, the USD/CAD pair is poised to maintain its bullish momentum in the near term as investors anticipate key economic data releases and central bank decisions.

Bullish US Dollar & Economic Data & Its Impact on USD/CAD Pair

On the US front, the broad-based US dollar managed to halt its previous losses and regained positive traction, thanks to higher US Treasury yields and risk-off market sentiment.

Although there have been recent dips in the dollar prompted by economic data, such as the Institute for Supply Management (ISM) revealing a contraction in the US manufacturing sector for the second consecutive month in May, the overall bullish sentiment towards the USD has remained dominant.

Investors remain hopeful about the strength of the US economy, particularly as anticipation builds around the upcoming US Services Purchasing Managers' Index (PMI) and Nonfarm Payrolls (NFP) data. Hence, positive outcomes from these indicators could further bolster confidence in the USD and propel the USD/CAD pair higher.

Impact of Monetary Policy Divergence on USD/CAD Pair

On the other side, the expectations for the Bank of Canada (BoC) to cut its key lending rate by a quarter of a percentage point are also influencing the USD/CAD pair. The BoC's potential rate cut, amidst cooling inflation in Canada, contrasts with the US Federal Reserve's stance, which has been more cautious about adjusting interest rates.

This divergence in monetary policy between the BoC and the Fed is likely to weigh on the Canadian dollar (CAD) and provide a favorable environment for the USD/CAD pair to continue its upward movement.

Meanwhile, the comments from BoC Governor Tiff Macklem indicating openness to rate cuts based on economic data further support market expectations of a potential rate cut, adding to the bullish outlook for the USD/CAD pair.

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

USD/CAD - Technical Analysis

The USD/CAD pair is currently trading at $1.36558, reflecting a 0.16% increase in the 4-hour timeframe. The pivot point at $1.3661 is a crucial level, serving as a key benchmark for potential price movements.

Immediate resistance levels are identified at $1.3687, $1.3705, and $1.3728, indicating potential upward barriers that could limit further gains.

On the support side, immediate support is noted at $1.3621, followed by $1.3604 and $1.3580. The 50-day Exponential Moving Average (EMA) is positioned at $1.3666, suggesting that the current price is hovering near this important technical indicator.

The Relative Strength Index (RSI) is at 51, indicating a neutral market sentiment, with no strong bias toward either buying or selling.

The technical outlook suggests a cautious approach, as the pair remains close to the pivot point and the 50 EMA. A break below the pivot point of $1.3661 could signal a bearish trend, with immediate targets at the support levels of $1.3621 and $1.3604.

Conversely, a move above the resistance level at $1.3687 could indicate further bullish momentum, targeting the next resistance levels at $1.3705 and $1.3728.

Given the current market conditions, the recommended strategy is to sell below $1.3666, with a take-profit target at $1.3621 and a stop loss at $1.3687. This strategy accounts for the possibility of a bearish trend continuation if the price fails to maintain above the pivot point and the 50 EMA.

In conclusion, the outlook for USD/CAD remains cautiously bearish below the $1.3661 pivot point. Immediate resistance levels at $1.3687, $1.3705, and $1.3728 could cap any potential upward movements.

On the downside, support levels at $1.3621, $1.3604, and $1.3580 are critical to monitor for signs of further bearish momentum.

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