Key Points: -
· The USD/CAD pair is experiencing a loss of momentum near the 1.3180 level during the Asian session.
· The US Dollar (USD) is currently under pressure as a result of a less hawkish stance from the Federal Reserve (Fed).
· Crude oil prices have reversed their previous pullback on Monday, which has provided a boost to the commodity-linked Canadian Dollar (CAD), also known as the Loonie.
Today's Scenario: -
The USD/CAD pair is facing challenges in gaining momentum on Tuesday, as the US Dollar continues to be sold off. Currently, the pair is trading around 1.3185, representing a 0.09% decline for the day.
The New York Federal Reserve Bank reported a drop in the NY Empire State Manufacturing Index from -5.5 to 1.1 on Monday, which was above expectations of -3.5. The US Dollar remains under pressure due to cautious optimism in the market, as investors anticipate a less hawkish stance from the Federal Reserve (Fed) regarding monetary policy tightening. Although an interest rate hike is expected in the July 26 meeting, the Fed's overall tone has contributed to a decline in US Treasury bond yields and a defensive stance among USD bulls.
Conversely, crude oil has reversed its previous pullback on Monday, which has provided support for the commodity-linked Canadian Dollar (CAD). Additionally, broader market sentiment may also impact the demand for the US Dollar and potentially offer some momentum to the USD/CAD pair in upcoming sessions.
Looking ahead, market participants will closely monitor the release of the Canadian Consumer Price Index (CPI) MoM data and the US Retail Sales figures later in the day. As the Fed has entered its blackout period ahead of the July 25-26 meeting, investors will analyze the data to determine a clear direction for the USD/CAD pair.
Diagram of USD/CAD: -
Economic Events: -
Buy Scenario: -
On the upside, a break above the 21-DMA resistance near 1.3225 could propel the USD/CAD pair towards a downward-sloping resistance line originating from May 31, which is close to 1.3285. Subsequently, the convergence of the 50-DMA and 50% Fibonacci retracement, around 1.3350, will be crucial to monitor as it could determine whether the USD/CAD bulls regain control.
From a fundamental perspective, it will be important to closely watch Canada's headline Consumer Price Index (CPI), Bank of Canada CPI, and the US Retail Sales data for June as they may provide clear indications for the direction of the USD/CAD pair. Till we do not advise to buy USD/CAD.
Sell Scenario: -
USD/CAD pair is displaying typical pre-data inaction as it hovers around the 1.3200 level. The pair is currently trading near the 61.8% Fibonacci retracement of its August-October upside and remains within a bearish trend channel that has been in place for the past four months.
The failure to surpass the 21-day moving average (DMA) resistance, located around 1.3225 at the moment, coupled with the steady Relative Strength Index (RSI) (14), suggests that the USD/CAD prices may continue to grind lower.
However, breaking below the bottom line of the descending channel, around 1.3100, may prove to be a challenging task for the bears. If the price does decline below 1.3100, the psychological level of 1.3000 and the 78.6% Fibonacci retracement near 1.2990 could attract further selling pressure. Till we do not advise to sell USD/CAD.
Support and Resistance Level: -
S1 1.3163 - R1 1.3234
S2 1.3126 - R2 1.3269
S3 1.3091 - R3 1.3306