The USD/CAD pair is moving sideways after a strong downward wave, but it has shown potential signs of a bullish reversal in recent hours, with the formation of a consolidation pattern and signs of breaking the descending trend line.
- Technical analysis:
The price is currently trading near 1.3849 after forming a strong bottom at 1.3769.
Breaking the descending trend line (drawn in orange) will be the first signal to confirm the bullish reversal.
In case of a breakout, we expect a gradual move towards the next resistance levels.
1.3970 as the first level.
1.4150 as the second level.
1.4400 as a third target if the upward momentum persists.
Important note: Each successful breakout of a resistance level increases the likelihood of directly targeting the next level.
Economic factors:
Despite negative data from the US industrial sector, the US dollar has managed to maintain strong gains against the Canadian dollar.
✅ From the American side:
The ISM manufacturing index came in at 48.7, indicating a contraction in the sector for the second consecutive month, but it is better than expected.
Nonetheless, the DXY dollar index jumped by 0.5% surpassing 100.00, supported by broad buying.
Fears of continued trade stagnation between the US and China are enhancing market volatility, with confirmation from the US trade representative that there are currently no negotiations ongoing with Beijing.
✅ From the Canadian side:
The Bank of Canada (BoC) kept the interest rate at 2.75% after seven consecutive cuts.
The meeting minutes indicated that the effects of previous cuts have not fully manifested yet, so any new cut may be premature.
The central bank will remain flexible in its decisions until it is assured of the stability of medium-term inflation expectations.
- The divergence between the flexibility of the Bank of Canada and the markets' tightening regarding the dollar may push the pair into a technically warranted upward corrective wave.