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USD/CAD Price Analysis: Remains defensive below 1.3600, setup favors bulls

  • USD/CAD is trading in a tight range below the 1.3600 level on Monday.
  • The technical situation favors the bulls and supports the prospects for further gains.
  • A convincing break below the 200-day SMA will negate the positive bias.

The USD/CAD pair fails to capitalize on Friday’s strong rally from just below the psychological 1.3500 level, or a two-week low, and begins the new week on a dovish tone. The pair remains below the round 1.3600 level at the start of the European session, although the short-term bias seems to be skewed to the bullish side and suggests that the path of least resistance is to the upside.

Expectations that the Federal Reserve (Fed) will leave interest rates unchanged at its September policy meeting, coupled with a positive risk tone, weigh on the safe-haven US dollar (USD) and act as a wind against for the USD/CAD pair. Market participants, however, seem convinced that the Fed will keep rates higher for longer and have been pricing in the possibility of a further 25 basis point hike later this year. This remains support for high US Treasury yields and should help limit the dollar’s slide.

On the other hand, growing concern about a further global economic recession dwarfs the optimism generated by China’s new stimulus measures and supports the prospects for further appreciation of the dollar in the near term. The Canadian dollar (CAD), meanwhile, is weighed down by data on Friday, which shows that the economy contracted during the second quarter. This, coupled with a slight pullback in crude oil prices, could weigh on the commodity-priced CAD and support the USD/CAD pair.

From a technical point of view, the recent breakout of the 200-day SMA and the appearance of new buying on Friday favor the bulls. Furthermore, oscillators on the daily chart are comfortably in positive territory and have broken out of the overbought zone a bit. This reinforces the short-term positive outlook for the USD/CAD pair, although it would be prudent to wait to break above the 1.3600 level before positioning for further gains.

The next major hurdle is near the 1.3635-1.3640 zone, or the multi-month high reached in August. The USD/CAD pair could reach the 1.3700 level on its way to the 1.3740-1.3745 resistance zone. Momentum could extend further towards the round 1.3800 level, above which the pair could rally to the yearly high around the 1.3860 zone touched in March.

On the flip side, any significant decline is more likely to find decent support near the 1.3555-1.3550 zone. A further drop could be seen as a buying opportunity near the 1.3500 level and remain capped near the 1.3460-1.3455 region, or the 200-day SMA. This last level should act as a turning point, which if broken decisively would shift the bias in favor of the bears and leave USD/CAD vulnerable. The pair could fall to the 1.3400 level on its way to the next relevant support near the 1.3370 area.

USD/CAD daily chart


USD/CAD additional technical levels


Last price today 1.3586
Today Change Daily -0.0008
today’s daily variation -0.06
today’s daily opening 1.3594
daily SMA20 1.3514
daily SMA50 1.3346
daily SMA100 1.3396
daily SMA200 1.3464
previous daily high 1.3613
previous daily low 1.3489
Previous Weekly High 1.3637
previous weekly low 1.3489
Previous Monthly High 1,364
Previous monthly minimum 1.3184
Fibonacci daily 38.2 1.3566
Fibonacci 61.8% daily 1.3536
Daily Pivot Point S1 1.3518
Daily Pivot Point S2 1.3442
Daily Pivot Point S3 1.3395
Daily Pivot Point R1 1.3642
Daily Pivot Point R2 1.3689
Daily Pivot Point R3 1.3765

Source: Fx Street

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