USD/CAD Continues Upward Movement
The USD/CAD pair is maintaining its three-week upward trend, reaching its highest level since July 9 and getting close to the 1.4200 level during the Asian trading session on Tuesday, spurred on by a strong US Dollar (USD).
The USD Index (DXY), which measures the Greenback against other currencies, is holding steady near a two-month high, following a hawkish sentiment from the Federal Reserve (Fed). Recently, the US central bank indicated a potential rate hike before the year ends, after raising rates by 25 basis points for the first time in over three years earlier this month. Additionally, concerns over energy-driven inflation are fueling speculations of further tightening, pushing US bond yields to multi-year highs, which supports the dollar.
Moreover, ongoing geopolitical tensions, particularly involving the US and Iran, are contributing to the safe-haven appeal of the USD, providing additional support for the USD/CAD pair. In the latest updates from the Middle East, US President Donald Trump turned down an Iranian proposal to reopen the Strait of Hormuz immediately upon meeting their demands to stop hostilities. However, reports suggest that Trump might consider easing sanctions and releasing Iran’s frozen assets in exchange for tangible progress regarding the country’s nuclear program.
This situation is placing a cap on crude oil prices, while the Bank of Canada (BoC) maintains a mostly dovish policy stance that, along with US-Canada trade issues, weighs on the commodity-linked Loonie. This backdrop suggests that the most likely direction for spot prices may still be upward. Still, traders might be biding their time ahead of this week’s US Personal Consumption Expenditures (PCE) Price Index and Nonfarm Payrolls (NFP) data releases.
USD/CAD Daily Chart
Technical Analysis
The USD/CAD pair continues its upward movement, having reclaimed several Fibonacci retracement levels between the 61.8% level at 1.4049 and the 78.6% level at 1.4137. Prices are also securely above the 100-day Simple Moving Average (SMA) at 1.3977, reinforcing a bullish outlook in the near term, with potential for further gains towards the cycle high around 1.4248. This level may act as a barrier for the current bullish phase, defining immediate resistance for any further advancements.
On the downside, initial support lies at the 78.6% retracement at 1.4137, followed closely by the 61.8% retracement at 1.4049 and then the 50% retracement at 1.3988. This last level aligns with the 100-day SMA at 1.3977, creating a wider demand zone. However, if there are deeper pullbacks, it could lead to the 38.2% retracement at 1.3926 and the 23.6% mark at 1.3850, with a structural anchor existing near 1.3727.
