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USD/CAD on a Daily Timeframe
USDCAD on a daily timeframe has been experiencing a corrective phase following a mid-2024 high near 1.39, after which the pair has declined steadily. The most recent price action shows a retracement from the 1.36 region, where it met resistance at the 100-day moving average (blue line), and a subsequent move lower toward the 1.3370 support level, marked by the red horizontal line.
In the past week, USD/CAD saw a pullback from the 1.36 region amid a broader strengthening of the Canadian dollar. Notably, a bullish divergence has emerged on both the RSI and Stochastic indicators. The RSI has climbed from oversold levels and currently stands at 38, while the Stochastic oscillator is also pointing upward from the oversold area. This confluence of indicators suggests the pair could be primed for a potential short-term rebound.
The indicators signal mixed momentum. The 200-day moving average (yellow line) lies well above the current price, and the 50-day (green line) and 100-day moving averages are compressing, indicating the pair may continue to trade in a consolidative or range-bound pattern in the near term. The RSI suggests that bearish momentum is waning, and Stochastic supports the potential for a corrective bounce.
The primary scenario sees USD/CAD bouncing from the 1.3370 support level, with a potential move back toward the 1.3600 region, especially if technical indicators sustain their current bullish divergences. The ongoing consolidation and oversold readings imply that the downside may be limited in the short term. Traders will be eyeing any break of the recent highs for signs of an upward reversal, with 1.3600 as the first target.
An alternative scenario involves a breakdown below 1.3370, which would invalidate the bullish divergences. If the support level is breached, the next area of interest would be closer to the psychological 1.3100 level. This scenario could be fueled by any unexpected bullish momentum in the Canadian dollar, potentially from positive domestic economic data or broader risk-off sentiment in the markets.
Investors should remain cautious ahead of key Canadian GDP data, set for release on Friday. The market consensus is for 0% growth, and any deviation from this figure could significantly impact USD/CAD. Should the GDP figures exceed expectations, signaling stronger economic performance, the Canadian dollar could gain, reducing the probability of a near-term rate cut by the Bank of Canada. In such a case, USD/CAD may slide toward 1.3370 or lower.
Conversely, a below-expected GDP result would heighten the chances of a 50-basis-point rate cut, weakening the CAD and pushing USD/CAD higher toward the 1.3600 resistance level.
Summary:
- USD/CAD is in a corrective phase, approaching key support at 1.3370.
- Bullish divergences on the RSI and Stochastic indicators suggest a potential rebound.
- The pair could move back toward 1.3600 if the support level holds.
- A breakdown below 1.3370 may push USD/CAD lower, toward 1.3100.
- Upcoming Canadian GDP data could significantly influence USD/CAD's direction.
