Technical Analysis

USD/CAD Price Analysis – March 12, 2024

By LonghornFX Technical Analysis
Mar 12, 20244 min

Daily Price Outlook 

The USD/CAD currency pair continued its bearish trend, remaining well offered around the 1.3472 level. However, the downward trend can be attributed to the bearish US dollar, which was being pressured by increasing speculation of a Fed rate cut in June. However, the bearish US dollar was seen as a key factor that kept the USD/CAD pair down. Furthermore, crude oil prices rose as geopolitical tensions in the Middle East continued to spur concern. Hence, higher crude oil prices typically support the Canadian dollar, as Canada is a major exporter of oil, which often leads to a decrease in the USD/CAD pair.

In contrast to this, Bank of Canada Governor Tiff Macklem's statement that it's premature to ease monetary policy despite cooling inflation could be seen as negative for the Canadian dollar. It suggests interest rates may not rise soon, weakening the currency.

Impact of Bank of Canada's Interest Rate Decision on USD/CAD Pair

On the Canadian front, the Bank of Canada (BoC) recently decided to keep its interest rate steady at 5.0%, which was widely anticipated. BoC Governor Tiff Macklem emphasized during a press conference that they're not ready to lower interest rates yet. He explained that they want to see more progress in controlling core inflation before considering any rate cuts. Macklem said they need to wait longer for higher rates to work. So, the market now expects a rate cut in July instead of June, making the Canadian Dollar stronger against the US Dollar.

Therefore, the delay in expected rate cuts by the Bank of Canada has strengthened the Canadian Dollar (CAD), causing the USD/CAD pair to face downward pressure as the CAD gains strength.

Impact of US Labor Market Data and Fed's Dovish Remarks on USD/CAD Pair

On the US front, the labor market data for February showed mixed results, failing to meet the Fed's expectations for a strong recovery. Moreover, dovish remarks from Federal Reserve officials last week reinforced the anticipation of a rate cut in June. Fed Chair Powell mentioned during his semiannual testimony that while more confidence is needed before lowering rates, they're not far from considering it. Currently, around 70% odds of a rate cut by June are being priced in by money markets, according to the CME FedWatch tool. This uncertainty about future interest rates is influencing the market sentiment regarding the US Dollar.

Therefore, the anticipation of a rate cut by the Fed in June, due to mixed US labor market data and dovish remarks, could weaken the US Dollar (USD) against the Canadian Dollar (CAD).

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

USD/CAD - Technical Analysis

In today's trading, the USD/CAD pair experienced a minor decline of 0.07%, settling at 1.34724. This slight movement reflects a cautious sentiment in the market, underscoring the pair's struggle for direction amid conflicting economic indicators from both the United States and Canada. Analyzing the four-hour chart, the pair currently trades just above the pivot point of 1.34587, indicating a precarious balance between buyers and sellers.

Resistance levels identified at 1.35140, 1.35453, and 1.35696 denote potential obstacles for any bullish momentum. Conversely, immediate support lies at 1.34522, with further cushions at 1.34130 and 1.33766 to arrest any downward movement. The Relative Strength Index (RSI) standing at 42 points towards a slight bearish bias but remains distant from the oversold territory, suggesting room for downward movement without immediate risk of reversal.

The 50-day Exponential Moving Average (EMA) at 1.35099, currently above the price, serves as a short-term resistance level, reinforcing the bearish outlook. The observation of multiple Doji candles below the pivot point hints at market indecision, yet leans towards a potential bearish shift given the current positioning.

Given these technical insights, the USD/CAD pair exhibits a cautious bearish sentiment. Traders might consider entering a sell position below 1.34829, targeting a take profit at 1.34528, with a stop loss set at 1.35143 to mitigate risk. This strategy aligns with the observed market dynamics and technical indicators, suggesting a slight selling pressure might prevail in the near term.

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