USDCAD’s recent upward shift from a September low highlights a reversal driven by converging technical patterns and momentum signals. A non-failure swing and the emergence of a “Golden Cross” suggest renewed strength, while strategic resistance and support levels frame the path ahead. Momentum indicators reinforce the prevailing trend, though a negative divergence indicates potential pauses or adjustments. This technical landscape unfolds against a broader macroeconomic backdrop as policy shifts by the Bank of Canada and evolving global growth conditions continue to shape the currency’s trajectory.
High Impact Economic Events
Thursday 11:00 am (GMT+3) – Europe: Flash Manufacturing PMI (EUR)
Thursday 11:00 am (GMT+3) – Europe: Flash Services PMI (EUR)
Thursday 11:30 am (GMT+3) – UK: Flash Manufacturing PMI (GBP)
Thursday 11:30 am (GMT+3) – UK: Flash Services PMI (GBP)
Thursday 16:45 (GMT+3) – USA: Flash Manufacturing PMI (USD)
Thursday 16:45 (GMT+3) – USA: Flash Services PMI (USD)
Friday 15:30 (GMT+3) – Canada: Retail Sales m/m (CAD)
Chart Analysis
Since reaching a low of 1.34186 in late September, USDCAD demonstrated a clear upward trend, marked by a confluence of technical reversal patterns. Specifically, the initial signal was indicated by a non-failure swing pattern, which put an end to the downtrend and marked the beginning of a new trend in the opposite direction. In particular, the trough at 1.34186 dipped below the previous trough, and subsequently, prices surpassed the peak at 1.36466, paving the way for further appreciation. The upward momentum has been further validated by a bullish double crossover known in technical analysis as a “Golden Cross.” Particularly, the 20-period Exponential Moving Average (EMA) crossed above the 50-period EMA, signaling strong upward momentum and setting the stage for continued gains.
Technical indicators also affirm the currency pair’s bullish outlook. Prices remain above both the 20- and 50-period EMAs, reinforcing the strength of the rally. Additionally, the Momentum oscillator records values above the 100 mark, and the Relative Strength Index (RSI) is above the 50 level, both of which suggest continued positive momentum in the near term.
On closer inspection, the negative divergence between the price and the Momentum oscillator alerts for a potential pause or correction in the near term.
Key Resistance Levels
Should the buyers maintain market control, traders may direct their attention toward the four potential resistance levels below:
1.38619: The first level of resistance is projected at 1.38619, which aligns with the daily high reached on October 23.
1.38941: The second price target is seen at 1.38941, aligning with the 161.8% Fibonacci Extension drawn from the swing high of 1.38376 to the swing low of 1.37462.
1.39457: The third price objective is estimated at 1.39457, representing the peak reached on August 5.
1.39855: An additional price target is established at 1.39855, reflecting the 261.8% Fibonacci Extension, calculated from the swing high of 1.38376 to the swing low of 1.37462
Key Support Levels
Should the sellers take market control, traders may consider the four potential support levels listed below:
1.37912: The initial support level is identified at 1.37912, representing the weekly Pivot Point, PP, calculated using the standard methodology.
1.37462: The second support level is seen at 1.37462, reflecting the swing low from October 17.
1.36998: The third support level is positioned at 1.36998, aligning with weekly support, S2, calculated using the standard Pivot Points methodology.
1.36466: An additional downside target is noted at 1.36466, corresponding to the peak marked on September 19.
Fundamentals
The Bank of Canada cut its overnight rate to 3.75% and continues balance sheet normalization. Global growth is expected at 3%, with strong US growth and weak performance in China and the euro area. Canadian GDP grew 2% in the first half of 2024, slowing to 1.75% in the second half. The labor market remains soft, with unemployment at 6.5%.
The Bank forecasts GDP growth of 1.2% in 2024, rising to 2.3% by 2026, driven by consumer spending and housing demand. Inflation dropped to 1.6% in September, and core inflation is below 2.5%. Future rate cuts may occur if economic conditions align with forecasts, as the Bank aims to keep inflation around 2%.
Conclusion
USDCAD’s recent rally, driven by key technical patterns such as the “Golden Cross” and supported by strong momentum indicators, suggests further upside potential. However, divergences in momentum point to the possibility of short-term corrections. Key resistance and support levels provide guidance for market direction, while the broader macroeconomic environment, shaped by the Bank of Canada’s rate cuts and evolving global growth forecasts, continues to influence the currency pair. As economic data unfolds, particularly high-impact events like retail sales and PMI reports, market participants will remain vigilant for shifts in momentum and sentiment.