- A combination of factors pushed USD / CAD higher for the second day in a row on Thursday.
- It is moving past the 200 DMA, 1.2500 and the resistance of the ascending channel favors the bulls.
- The overbought RSI on the hourly charts appears to be the only factor limiting the pair’s gains.
The pair USD / CAD It capitalized on the previous day’s US CPI-inspired rally of more than 115 pips from levels below 1.2400 and gained strong follow-up traction on Thursday. This marked the second day in a row of a strong positive move and pushed the pair to a five-week high, around the 1.2570-75 region during the mid-European session.
US consumer prices in October rose at the fastest annual pace since 1990, raising bets that the Fed would adopt a more aggressive policy response to contain mounting inflationary pressures. This, in turn, drove the US dollar index to its highest level since July 2020 and acted as a tailwind for the USD / CAD pair.
On the other hand, falling crude oil prices undercut the commodity-pegged Canadian dollar and provided an additional boost to the pair. Apart from this, technical buying with sustained strength beyond the very important 200-day SMA and the key psychological level 1.2500 further contributed to the ongoing positive momentum.
Meanwhile, the latter stage confirmed a short-term bullish breakout through a three-week ascending channel and could have set the stage for further gains. That said, the RSI on the hourly charts shows intermittent overbought and deserves some caution before placing new bullish bets on the USD / CAD pair.
Investors could also refrain from aggressive bets amid relatively tight liquidity conditions following a bank holiday in the US and Canada. That said, the oscillators on the daily chart have just started to gain positive traction and are still far from being in overloaded territory, adding credibility to the positive bias.
The USD / CAD pair appears to be on the verge of recovering the round 1.2600 level. The aforementioned control coincides with the 50% Fibonacci level of the recent bearish leg of 1.2896-1.2288, which should now act as a key point for traders. Some subsequent purchases should pave the way for further appreciation in the short term.
The upward trajectory could extend further towards the 61.8% Fibonacci level around the 1.2665-70 region, above which the bulls are likely to aim to regain the round 1.2700 level.
On the other hand, the breakout point of the ascending channel, which coincides with the 38.2% Fibonacci level, around the 1.2525 region, now appears to protect the immediate decline. Any further decline could be seen as a buying opportunity near 1.2500, which should help limit the pullback near the 200 DMA support, currently near the 1.2480-5 region.
Daily chart
Technical levels
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