Technical Analysis

USD/CAD Price Analysis – May 7, 2024

By LonghornFX Technical Analysis
May 7, 20243 min

Daily Price Outlook

During the European trading session, the USD/CAD currency pair continued its upward trend, remaining well-bid around the 1.3679 level and reaching an intraday high of 1.3692. This upward movement can be attributed to the renewed strength of the US dollar, which gained momentum due to a shift toward risk-off market sentiment.

Besides this, the recent decline in oil prices contributed to a weaker Canadian dollar, thereby putting upward pressure on the USD/CAD pair. Meanwhile, the ongoing expectations of potential rate cuts by the Bank of Canada also contributed to the Canadian dollar's weakness, further supporting the rise in the USD/CAD currency pair.

U.S. Dollar Strengthens on Geopolitical Tensions and Speculation of Federal Reserve Rate Cuts, Supporting USD/CAD Gains

On the U.S. front, the broad-based US dollar gained traction despite recent downbeat labor market data and comments from Federal Reserve officials sparking speculation of rate cuts.

Richmond Fed President Thomas Barkin suggested that current interest rates should cool the economy to meet the Fed's 2% inflation goal. New York Fed President John Williams hinted at eventual rate cuts, though without a specific timeframe.

However, the U.S. dollar strengthened amidst geopolitical tensions in the Middle East, as uncertainties led investors to seek safe-haven currencies like the Greenback. Israel's ongoing military actions against Hamas in Gaza heightened concerns, despite ceasefire proposals from Egyptian and Qatari mediators.

Therefore, the U.S. Dollar's strength due to geopolitical tensions and safe-haven demand, combined with hints of future rate cuts from Federal Reserve officials, boost the USD/CAD currency pair.

Bank of Canada Rate Cut Expectations and Lower Oil Prices Weigh on Canadian Dollar, Boosting USD/CAD

On the Dnada front, the Bank of Canada (BoC) might be closer to rate cuts than the U.S. Federal Reserve, leading to a weaker Canadian Dollar and strengthening the USD/CAD pair. Additionally, oil prices have dropped to near two-month lows, putting additional pressure on the Canadian Dollar, given that Canada is a significant oil exporter.

Therefore, the possibility for Bank of Canada rate cuts and declining oil prices are likely to weaken the Canadian Dollar, leading to gains in the USD/CAD pair as the U.S. dollar strengthens.

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

USD/CAD - Technical Analysis

In today’s foreign exchange market dynamics, the USD/CAD pair has shown a modest uptick, currently trading at $1.36798, marking an increase of 0.12%. This slight rise comes as the pair navigates around a crucial pivot point set at $1.37524, suggesting a potential zone of fluctuation that could dictate short-term market movements.

For traders eyeing resistance levels, the USD/CAD faces its first major barrier at $1.37347. Surpassing this could open the path towards higher resistance at $1.37884, followed by $1.38361. These levels are key for traders to monitor, as they could signify stronger bullish momentum if breached.

Conversely, the support structure begins at $1.36137. Should the pair decline, subsequent support levels at $1.35615 and $1.35161 will be critical to preventing further downward movement. Each of these marks a potential turning point where buying interest might be reignited to stabilize or reverse the downtrend.

The technical indicators provide a nuanced perspective; the Relative Strength Index (RSI) is nearly neutral at 48, indicating no immediate overbought or oversold conditions.

Meanwhile, the 50-Day Exponential Moving Average (EMA) at $1.36897 slightly exceeds the current price, suggesting a delicate balance in trader sentiment that could lean towards bullish if sustained upward movement persists.

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