The USDCAD pair, currently trading at 1.35897, finds itself at a pivotal juncture ahead of the US Personal Consumption Expenditure Price Index (PCE) and Canadian Q4 GDP data release at 13:30 GMT. The recent mixed signals from both economies contribute to the pair’s indecision. A slightly lower-than-expected US Q4 GDP and potential easing of disinflation concerns might lift the US Dollar. Conversely, Canada’s anticipation of a steady 0.2% GDP growth in December struggles against the shadow of the looming US PCE release.
Investors are grappling with the possibility of a rate cut by the Bank of Canada amidst a weakening economy, echoed by the recent -1.62 billion Current Account figure. The technical landscape portrays a bullish bias, with the 4-hour chart indicating a robust upward momentum, supported by the 20-SMA crossing above the 50-SMA and 100-SMA. RSI at 66.84 hints at an overbought market but leaves room for further upside.
Technical
The 4-hour chart shows that the current Price is at 1.35897 (slightly higher pre-PCE). Price sits comfortably above key moving averages, i.e. the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange). This bullish formation suggests an upward trend. The 20-SMA recently crossed above the 50-SMA and 100-SMA, followed by the 50-SMA crossing above the 100-SMA. This golden cross is a strong bullish signal.
RSI (66.84) is upward-sloping and approaching overbought territory. This indicates strong buying momentum but also suggests a potential short-term pullback if the PCE data disappoints. Short-term trading opportunities could exist towards the 11-week high of 1.36062 price level should the bulls sustain a push higher. A break above the initial resistance could confirm the bullish momentum, likely bringing the resistance at 1.36407 into play.
However, short-term trading opportunities could arise towards the initial support at 1.35478 should the report push the price action lower. A break below the 1.35478 level would likely bring the 38.20% Fibonacci retracement level (1.35116) and 50.00% Fibonacci retracement level (1.34824) support levels into play in the short term.
Summary
USDCAD traders brace for volatility as macroeconomic factors vie for dominance. Bullish momentum could carry the pair to test the 11-week high of 1.36062, but the 1.36407 resistance looms larger. Conversely, a dip below 1.35478 may expose support levels at 1.35116 and 1.34824. With the US PCE as the catalyst, navigating these levels will be crucial, reflecting the delicate balance between the strength of the US Dollar and concerns over Canada’s economic resilience.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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