The USDCAD has been following a downward path since early August, supported by key technical indicators, suggesting a potential further decline. However, fundamental challenges could influence market sentiment, including the Bank of Canada's and Fed's expectations to cut interest rates in September.
Traders should closely monitor the currency pair in anticipation of important economic data, market sentiment, and technical insights that could impact currency valuations.
Overview
The USDCAD has been following a downward path since early August, supported by key technical indicators, suggesting a potential further decline. However, fundamental challenges could influence market sentiment, including the Bank of Canada's and Fed's expectations to cut interest rates in September.
Traders should closely monitor the currency pair in anticipation of important economic data, market sentiment, and technical insights that could impact currency valuations.
Key Economic Events
Wednesday 17:30 (GMT+3) - USA: EIA Crude Oil Stocks Change (USD)
Thursday 15:30 (GMT+3) - USA: GDP q/q (USD)
Thursday 15:30 (GMT+3) - USA: Unemployment Claims (USD)
Friday 02:50 am (GMT+3) - Japan: Retail Sales m/m (JPY)
Friday 04:30 am (GMT+3) - Australia: Retail Sales m/m (AUD)
Friday 09:45 am (GMT+3) - France: GDP q/q (EUR)
Friday 15:30 (GMT+3) - Canada: GDP m/m (CAD)
Friday 16:30 (GMT+3) - USA: Core PCE Price Index m/m (USD)
Saturday 04:00 am (GMT+3): China: Manufacturing PMI (CNY)
Technical Analysis
The USDCAD exchange rate has been on a downward trajectory since August 5, when prices rebounded from the highs of 1.39648. Subsequently, the exchange rate between the US and the Canadian Dollar fell below the 50-period Exponential Moving Average, forming four consecutive weekly bearish Japanese candlesticks lower than each other. Specifically, the USDCAD "walked" the lower bands, paving the way for further declines. The 50-period Exponential Moving Average, the Momentum oscillator, and the Relative Strength Index (RSI) support the bearish bias for the USDCAD. In particular, prices are trading below the EMA line; the Momentum registers values below the 100 baseline, and the RSI below 50. A note of concern is that the RSI dropped below the 30 oversold line.
Potential Upside Targets
If the bulls keep control of the market, traders may consider the following four potential upside targets:
1.35640: The first price target is 1.35640, which aligns with the weekly Pivot Point (PP) calculated using the standard method.
1.35887: The second price target is seen at 1.35887, representing a trough established on June 11.
1.36293: An additional resistance level is determined at 1.36293, corresponding to the 38.2% Fibonacci Retracement drawn from the swing high of 1.39468 down to the swing low of 1.34368 coinciding with the weekly resistance (R1) calculated using the standard method.
1.37520: The fourth resistance is established at 1.37520, representing the 61.8% Fibonacci Retracement drawn from the swing high of 1.39468 down to the swing low of 1.34368
Potential Downside Targets
If the bears manage to take control of the market, traders may find potential opportunities in the following four downside targets:
1.34368: The initial level of support is identified at 1.34368, corresponding to the daily low established on August 27.
1.33778: The second line of support is estimated at 1.33778, which aligns with the weekly support (S2) calculated using the standard Pivot Points method.
1.33429: The third downside target is expected to be 1.33429, corresponding to a previously formed trough.
1.32569: An additional support level is estimated at 1.32569, representing the weekly support (S3) calculated using the standard Pivot Points method.
Fundamentals
Economists anticipate that the Bank of Canada will continue cutting interest rates, with a third consecutive reduction expected at the upcoming September 4 meeting. The central bank is projected to lower the benchmark rate to 4.25%, continuing a trend of easing borrowing costs as inflation decreases. This move is in sync with global trends, including expected rate cuts by the U.S. Federal Reserve. The easing of rates is seen as beneficial for Canada's economic growth and could provide relief for the government's fiscal challenges, particularly regarding debt service costs.
Conclusion
In conclusion, the USDCAD currency pair is currently exhibiting a downward trend, supported by key technical indicators and market sentiment. As both the Bank of Canada and the Federal Reserve are expected to cut interest rates, traders should remain vigilant, monitoring economic data and technical signals for potential shifts in market direction. While the bearish outlook prevails, the evolving economic landscape and central bank policies will play a crucial role in shaping the future trajectory of the USDCAD pair.