Published on Jul 19, 2023

USD/CAD Price Analysis: Bulls Challenged below 1.3200 amid Oil Retreat- 19-07-2023

USD/CAD Analysis

Key Points: -

The USD/CAD pair attempts to shake off its bearish sentiment after a two-day losing streak but encounters difficulty in gaining bullish momentum.
A disappointing Canada inflation figure and promising details of US Retail Sales provide support for the Canadian dollar pair's upward movement.
Following the largest daily surge in over a week, oil prices retreat due to a sluggish market environment and underwhelming news from China.

Today's Scenario: -

The USD/CAD pair remains uncertain around the 1.3170-80 level in early Wednesday morning in Europe. Despite pausing its two-day downtrend, market participants are awaiting further clues to support the buyers of the Canadian dollar pair in a sluggish Asian session.

The contrasting data releases between Canada and the US contribute to the hesitancy. Canada's headline inflation figures disappointed, with the Consumer Price Index (CPI) for June easing to 2.8% YoY, lower than the expected 3.0%. Additionally, the Bank of Canada's CPI Core also softened to 3.2% YoY. On the other hand, US Retail Sales growth in June came in lower than expected at 0.2% MoM, although the Retail Sales Control Group showed better growth than forecasted. US Industrial Production for June also fell short of analysts' expectations.

Furthermore, WTI crude oil prices dropped 0.35% to $75.40 as concerns about lower energy demand from China and expectations of higher supplies from Nigeria and Libya weigh on the commodity. China's Industry Ministry expressed fears of insufficient demand and declining revenues, adding to concerns about the country's economic recovery. Given China's status as a major oil consumer, these economic concerns put downward pressure on oil prices and contribute to the rebound in the USD/CAD pair.

Meanwhile, the US Dollar Index (DXY) edges higher to around 100.05 after bouncing back from a 15-month low. The index struggles to justify dovish Federal Reserve (Fed) concerns. According to a recent Reuters poll of economists, the widely anticipated 25 basis points rate hike by the Fed in July is expected to be the last increase of the current tightening cycle.

Although Fed-related discussions are keeping market sentiment positive, minimal progress in Sino-American ties prevents further deterioration in relations. Additionally, the share prices of top-tier US banks such as Bank of America, Morgan Stanley, and Bank of New York Mellon Corp rallied on Tuesday, supporting the risk-on mood amid news that higher interest rates had boosted profits in the second quarter, as reported by Reuters.

Diagram of USD/CAD: -

Economic Events: -

Buy Scenario: -

On the upside, if the price reverses its direction and starts climbing, it may encounter resistance at 1.3232. This level represents a multi-swing high resistance and coincides with the 50% Fibonacci retracement level. If the bullish momentum persists, the second resistance level at 1.3278 becomes significant. This level aligns with a pullback resistance and corresponds to the 61.8% Fibonacci projection.

It's worth noting that there is an intermediate support level at 1.3147, which coincides with the 61.80% Fibonacci retracement and serves as a potential rebound point in a bearish scenario. Till we do not advise to buy USD/CAD.

Sell Scenario: -

The USD/CAD pair is currently exhibiting a neutral momentum, indicating a range-bound movement with fluctuations between the first resistance and first support levels.

The first support level is located at 1.3099, which is a significant swing low support that could potentially halt any further downward movement. If the price continues to decline, the second support level at 1.3056 becomes relevant. This level is marked by a Fibonacci confluence at the 61.80% projection and is expected to provide a strong barrier against further downside. Till we do not advise to sell USD/CAD.