Technical Analysis

USD/CAD Price Analysis – May 21, 2024

By LonghornFX Technical Analysis
May 21, 20243 min

Daily Price Outlook

During the early European session on Tuesday, the USD/CAD currency pair has experienced a bullish performance, edging higher to 1.3630, hitting the intra-day high of 1.3644 level.

This rise is attributed to the modest rebound in the US Dollar, driven by market sentiment and anticipation of more hawkish stances from the Federal Reserve (Fed) officials, who are likely to maintain higher interest rates for an extended period.

This outlook supports the USD, making it more attractive to investors compared to other currencies, including the Canadian Dollar (CAD).

Higher Bets on Rate Cuts from the BoC and Decline in Oil Prices Weigh on the Loonie

On the other hand, the Canadian Dollar, often referred to as the Loonie, has been under pressure due to increasing bets on rate cuts from the Bank of Canada (BoC). Markets are expecting the BoC to cut interest rates 2-3 times before the Federal Reserve's first rate cut. This expectation is bolstered by the forecasted cooling of Canada’s CPI inflation figures.

The Canadian CPI inflation figures for April are anticipated to show further cooling, with expectations of a drop to 2.7% year-on-year from the previous 2.9%, and a decrease to 0.5% month-on-month from 0.6% in March. This cooling of inflation is fueling speculation about potential rate cuts.

Furthermore, the decline in crude oil prices is also contributing to the weakening of the CAD. As Canada is a leading exporter of oil to the United States, lower oil prices reduce revenue from exports, exerting additional selling pressure on the commodity-linked CAD.

Cautious Stance of US Federal Reserve Officials and Its Impact on USD/CAD

On the US front, US Federal Reserve officials have maintained a cautious stance regarding the timing of their monetary easing cycle.

They emphasize the importance of keeping interest rates higher for a longer period to ensure that inflation is effectively managed and on track to meet the Fed’s objectives. This "higher-for-longer" narrative supports the USD, as higher interest rates attract more investment, increasing demand for the currency.

Therefore, the cautious approach of the Fed also helps cap the downside of the USD/CAD pair. Investors and market participants will closely watch upcoming remarks from FOMC members and the Canadian CPI inflation report for further insights into the future movements of this currency 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 $1.36380, up 0.09% in the 4-hour timeframe. The pivot point is set at $1.3644, serving as a crucial reference for market participants. Immediate resistance levels are identified at $1.3687, $1.3726, and $1.3768. These levels mark potential hurdles for further upward movement, indicating where selling pressure may increase.

On the downside, immediate support is found at $1.3589, with additional support at $1.3552 and $1.3520. These levels are essential for maintaining the current price structure, acting as potential bounce points should the market experience downward pressure.

The Relative Strength Index (RSI) stands at 58, suggesting a moderately bullish sentiment. This indicates that while the market is leaning towards buying, it is not yet overbought, leaving room for potential upward movement.

The 50-day Exponential Moving Average (EMA) is positioned at $1.3619, just below the current price. Trading above this EMA generally signals a bullish trend. Given the current price is above this level, it reinforces the positive outlook for the USD/CAD pair in the near term.

Conclusion: The recommended trading strategy is to set a buy stop at $1.36519, with a take profit target at $1.36881 and a stop loss at $1.36189.

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