USDCAD at a Turning Point: Bullish Signals vs. Looming Uncertainties

The USDCAD pair has recently displayed notable bullish momentum, which has been marked by key technical patterns and supportive indicators. A non-failure swing pattern and a “Golden Cross” highlight potential upward movement, while key resistance and support levels provide critical price targets for traders. However, caution is warranted as a negative divergence in momentum signals the possibility of a near-term correction.

Fundamentally, the Bank of Canada’s recent rate cut and global economic dynamics add a macroeconomic layer to USDCAD’s outlook, with factors such as inflation trends, fiscal policies, and trade uncertainties influencing the pair’s trajectory.

Thursday 10:30 am (GMT+2) – Switzerland: SNB Policy Rate (CHF)

Thursday 15:15 (GMT+2) – Europe: Main Refinancing Rate (EUR)

Thursday 15:30 (GMT+2) – USA: PPI m/m (USD)

Thursday 15:30 (GMT+2) – USA: Unemployment Claims (USD)

Friday 09:00 am (GMT+2) – UK: GDP m/m (GBP)

The USDCAD pair bounced off its lows when it formed a bullish reversal pattern known as a non-failure swing. This pattern was confirmed when the trough at 1.34186 dipped below the previous low, followed by a breakout above the peak at 1.36466, signaling potential for further upward movement.

Adding to the bullish outlook, a “Golden Cross” formed as the 20-period Exponential Moving Average (EMA) crossed above the 50-period EMA, reinforcing upward momentum. This technical development aligns with supportive readings from momentum indicators. The Momentum Oscillator has moved above the 100 baseline, while the Relative Strength Index (RSI) remains above the critical 50 level, both suggesting sustained bullish pressure.

However, closer analysis reveals a potential counter-signal. A negative divergence between the price and the Momentum Oscillator warns of a possible pause in the current trend or an impending corrective move. This divergence underscores the importance of closely monitoring price action in the near term.

If buyers maintain control of the market, traders may shift their focus to the following four potential resistance levels:

1.41941: The first price target is seen at 1.41941, mirroring the peak from December 10.

1.42782: The second level of resistance is set at 1.42782, which aligns with the weekly resistance, R2, estimated using the standard Pivot Points methodology.

1.43948: The third price target is seen at 1.43948, mirroring the 261.8% Fibonacci Extension drawn from the swing high, 1.41048, to the swing low, 1.39262.

1.46827: An additional price objective is estimated at 1.46827, representing 423.6% Fibonacci Extension drawn from the swing high, 1.41048, to the swing low, 1.39262.

If sellers take control of the market, traders may focus on the following four key support levels:

1.40095: The initial support level is determined at 1.40095, representing the swing low from December 5.

1.38979: The second support level is seen at 1.38979, aligning with the 38.2% Fibonacci Retracement drawn from the swing low, 1.34186, to the swing high, 1.41941.

1.38376: The third downside target is established at 1.38376, corresponding to the peak marked on November 15.

1.37148: An additional downside target is noted at 1.37148, reflecting the 61.8% Fibonacci Retracement drawn from the swing low, 1.34186, to the swing high, 1.41941.

The Bank of Canada, as anticipated, lowered its overnight rate target by 50 basis points yesterday, December 11, to 3.25%, with the Bank Rate at 3.75% and the deposit rate at 3.25%. The Bank continues its balance sheet normalization efforts.

Global economic trends align with the Bank’s October outlook, with the U.S. economy showing strength, eurozone growth weakening, and China supported by exports despite subdued household spending. In Canada, Q3 GDP growth of 1% fell short of projections, with business investment and exports weighing on performance while consumer spending and housing activity rebounded.

Inflation remains steady at around 2%, and while wage growth has moderated, it remains elevated relative to productivity. Temporary fiscal policies and lower immigration levels are expected to affect growth and inflation, with additional uncertainty stemming from potential U.S. tariffs on Canadian exports. The Bank emphasized that future rate decisions will depend on incoming data and its inflation outlook as it seeks to maintain price stability and support growth.

The USDCAD pair is navigating a dynamic landscape, with bullish technical indicators pointing toward a potential upside while fundamental factors introduce complexity. Key resistance and support levels provide critical guidance for traders, but the presence of negative momentum divergence suggests caution is warranted in the near term.

The Bank of Canada’s rate cut and evolving global economic conditions add further depth to the outlook, with inflation stability and policy decisions likely to shape the pair’s trajectory. As technical and fundamental influences interplay, close monitoring of price action and upcoming economic events will be essential for informed decision-making.