USD/CAD is retracing from levels above 1.40, maintaining support around the 50- and 200-day EMAs. Market activity in USD/CAD seems confined within a range, exhibiting a modest bullish inclination influenced by the relative strength of the U.S. economy. The US dollar made an attempt to strengthen on Tuesday but ultimately relinquished its gains beyond the 1.40 threshold. The Canadian dollar has demonstrated a slight degree of support or strength within the pair. All things considered, pairis hovering near the 50-day EMA, which is a technical indicator closely monitored by many analysts, and additionally beneath the prevailing market conditions, the 200-day EMA is emerging as a potential support level for USD/CAD.
In a balanced scenario, the USD/CAD market appears to be in search of a trading range following our breakout above resistance, and we are currently assessing the next direction. While the Bank of Canada appears to have largely concluded its monetary easing for now, the Federal Reserve seems poised to implement rate cuts, which could directly influence pair movement. However, it’s important to note that the interest rate differential is not the sole factor in this narrative for USD/CAD. It is anticipated that the United States will outperform many other nations in the early part of next year, and it is likely that Canada is included in this consideration, despite the fact that they export a significant volume to the U.S.—all of which may play into USD/CAD dynamics.
Given the current situation, I anticipate considerable volatility in USD/CAD trading activity, and range-bound traders may utilize tools such as a stochastic oscillator to inform their trading strategies. If pair does break to the upside, I continue to favor that perspective at this point. We are likely anticipating a shift in USD/CAD toward approximately 1.4250. This is a pair that generally does not exhibit significant fluctuations in abrupt surges, so this observation does not come as a major surprise to me at all. A decline beneath the 1.39 level would position the pair below the 200-day EMA, potentially leading to a further pullback.
The current situation appears to be largely influenced by the performance of the US dollar, which directly impacts USD/CAD. It is noteworthy that the dollar is beginning to strengthen once more against the British pound and, to a lesser degree, the euro, while USD/CAD remains sensitive to these broader currency shifts. We will need to observe the developments as they unfold. Considering all factors, the market appears to be range-bound in the short term between 1.39 and 1.4150; however, my current inclination leans towards the upside.