- The USD/CAD pair is relatively stable ahead of the FOMC decision, currently trading below the 200-day EMA while testing a previous downtrend line for support.
- The market’s direction will rely heavily on the Federal Reserve’s tone, with key levels of interest ranging from 1.35 to 1.4250.
On Tuesday, the USD is experiencing a rather quiet trading session against the Canadian dollar. This hesitation makes sense, considering the FOMC’s interest rate decision is due tomorrow, prompting many traders to hold back on significant investments.
The USD has dipped below the 200-day EMA and exhibits some negative signs. Nonetheless, it’s attempting to find support along the previous downtrend line, which could show some resilience due to market memory. The next 24 hours will be telling in terms of where this pairing may head in the future. Historically, Federal Reserve announcements can create considerable market turbulence. A rate cut of 25 basis points is anticipated. Even if that plays out, I doubt it will lead to drastic changes. The real game-changer might be the subsequent press conference that could set off significant market reactions.
Fed tone and market reaction
If the Fed adopts a more dovish tone, it could exert additional pressure on the dollar. Conversely, if they issue a hawkish rate cut, the USD may gain strength. Canada has its own economic challenges, but last month saw unexpectedly strong hiring figures. However, it’s worth noting that Statistics Canada often struggles to produce reliable data, and their employment numbers can sometimes feel incomplete. This isn’t entirely surprising given past trends.
We’ll need to monitor for any follow-through. If the market breaks out from this point, the 1.37 level should act as support. If it falls short of that, we may see a target near 1.35. Should the USD reverse and reclaim the 200-day EMA, initial resistance could crop up around the 1.40 mark, followed by 1.4150 and then 1.4250, a level that had significant supply back in April. It’s important to note that this trading pair is usually quite volatile, so major shifts may take time to materialize.
With over 20 years in the financial markets, Christopher Lewis focuses on foreign exchange trading. He has been a staple contributor to various online platforms since their inception and frequently shares his insights on topics like technical analysis and trading strategies in stocks, commodities, and forex. His approach tends to be long-term, often holding positions for days or even weeks.
