As key economic events unfold this Friday, including Canada's employment data and the US PPI, traders are watching closely for signals that could influence market dynamics, particularly in the USDCAD pair. With the pair showing strong upward momentum since late September, breaking key resistance levels and supported by favorable technical indicators, the outlook remains bullish.
However, with significant data releases on the horizon and potential shifts in monetary policy, traders should be mindful of both upside potential and downside risks, as market sentiment could shift rapidly.
Overview
As key economic events unfold this Friday, including Canada's employment data and the US PPI, traders are watching closely for signals that could influence market dynamics, particularly in the USDCAD pair. With the pair showing strong upward momentum since late September, breaking key resistance levels and supported by favorable technical indicators, the outlook remains bullish.
However, with significant data releases on the horizon and potential shifts in monetary policy, traders should be mindful of both upside potential and downside risks, as market sentiment could shift rapidly.
Key Economic Events
Friday 09:00 am (GMT+3) - UK: GDP m/m (GBP)
Friday 15:30 (GMT+3) - Canada: Employment Change (CAD)
Friday 15:30 (GMT+3) - USA: PPI (USD)
Technical Analysis
Following a low of 1.34187 on September 25, USDCAD has demonstrated strong upward momentum, characterized by consecutive higher highs and higher lows. The pair broke through key resistance at 1.36467, establishing a bullish reversal pattern known as a non-failure swing in technical analysis. This pattern occurred when the trough at 1.34187 dipped below the prior low, followed by a rally that surpassed the previous peak at 1.36467.
Technical indicators reinforce the bullish outlook. The price is trading above the 50-period Exponential Moving Average (EMA), the Momentum Oscillator has crossed the 100 threshold, and the Relative Strength Index (RSI) has climbed above 50, all pointing to sustained buying pressure in the near term.
Potential Upside Targets
Should the bulls maintain market control, traders may direct their attention toward the four potential resistance levels below:
1.37876: The initial resistance is seen at 1.37876, which reflects the 161.8% Fibonacci Extension drawn from the swing high of 1.36467 to the swing low of 1.34187.
1.38459: The second price target is identified at 1.38459, which is a daily peak marked on April 16.
1.39468: The third target is established at 1.39468, the highest exchange rate reached since 2022.
1.40156: An additional price target is estimated at 1.40156, corresponding to the 261.8% Fibonacci Extension drawn from the swing high of 1.36467 to the swing low of 1.34187.
Potential Downside Targets
Should the sellers take market control, traders may consider the four potential support levels listed below:
1.36467: The first level of support is set at 1.36467, representing the swing high from September 19.
1.35455: The second support level is identified at 1.35455, reflecting the weekly Pivot Point calculated using the standard methodology.
1.35006: The third support level is estimated at 1.35006, representing the weekly support (S1) calculated using the standard Pivot Points methodology.
1.34187: An additional downward target is observed at 1.34187, corresponding to the trough from September 25.
Fundamentals
The USDCAD has been rallying for the ninth consecutive daily session since hitting a low of 1.34187 on September 25. The exchange rate between the US Dollar and the Canadian Dollar has strengthened by 2.653% to 1.37746, as of the time of writing, propelled by rumors that the Fed may pause its rate cuts.
In September, the US Consumer Price Index (CPI) increased by 0.2%, consistent with the previous two months. Over the last year, the CPI rose by 2.4%, marking the smallest annual gain since February 2021.
Markets are also awaiting Canada's employment report due on Friday, which is expected to show an addition of 27,000 jobs in September and an unemployment rate rise to 6.7%.
Investors anticipate that the Bank of Canada may ease interest rates for the fourth consecutive meeting on October 23, with some pricing in the possibility of a more aggressive 50 basis point cut.
Conclusion
In conclusion, USDCAD has maintained strong upward momentum, breaking key resistance levels and supported by bullish technical indicators. However, with significant economic data releases from Canada and the US on the horizon, traders should remain cautious of potential shifts in market sentiment. As fundamental factors, such as Canada's employment data and speculation around US and Canadian monetary policy, play out, both upside potential and downside risks will become clearer, guiding the pair's next moves.