USD/CAD Bears Test Ichimoku Cloud as Prices Tighten

Market Overview

On Monday, the USD/CAD pair is grappling with mixed market dynamics, driven by shifts in the risk appetite surrounding the US and Canadian economies. With the unveiling of President Trump’s cabinet members, safe-haven demand for the US dollar has diminished. Moreover, market optimism surrounding President Trump’s policies, along with the new Treasury Secretary’s views, has redirected attention towards equities and bonds. Nonetheless, the longer-term outlook for the US economy remains supportive of the dollar due to its consistent economic strength. On the other hand, the Canadian dollar has found some stability following a halt in oil price declines, supported by expectations of reduced supply in the coming months.

Technical Analysis

The USD/CAD pair continues to trade within a confined range on the 4-hour timeframe, caught between support at 1.39308 and resistance at 1.40202. Currently, the Ichimoku Cloud is bearish, indicating ongoing selling pressure. The price remains below the Ichimoku Cloud, reinforcing sellers’ dominance. Immediate resistance stands at 1.39650, aligned with the cloud and coinciding with the Tenkan-sen, establishing a significant barrier.

If the price fails to break above this resistance and remains below the cloud, the downtrend could extend further. A decisive breach of support at 1.39308 may lead the price towards lower targets. The subsequent bearish targets are situated at 1.39065 (127.2% Fibonacci extension), 1.38938 (141.4%), and 1.38756 (161.8%). If downward momentum persists, the final target lies at 1.38414 (200%).

The Relative Strength Index (RSI) is at 43.17, suggesting growing selling pressure but not yet in oversold territory. This reading indicates that sellers still maintain the upper hand, further confirming the market’s inclination towards a bearish trend.

The Moving Average Convergence Divergence (MACD) oscillator remains in negative territory, with its lines converging but showing no significant bullish signs. The histogram also points to a diminishing bullish momentum and strengthening bearish momentum.

Oscillators Confirmation

The momentum oscillators presently indicate a bearish environment. The RSI remains below 50, which implies prevailing selling interest, though not yet into the oversold range, suggesting additional room for the downtrend. The MACD histogram is in the negative zone, with convergence between the lines indicating some slowing in bearish strength but lacking sufficient evidence of an impending reversal. The moving averages also corroborate the bearish outlook, as the shorter-term averages remain firmly below their longer-term counterparts.

Alternative Scenario

If the price can break above the resistance level of 1.39650 and push above the Ichimoku Cloud, the next challenge will be the resistance at 1.40202. A successful break above this level could potentially shift the trend to bullish.

Key Support and Resistance Levels

Resistance Levels:

• 1.40202: Key resistance confirming a potential shift in sentiment if broken.
• 1.39650: Immediate resistance aligning with the Ichimoku Cloud and Tenkan-sen, acting as a strong barrier.

Support Levels:

• 1.39308: Immediate support, a break of which could drive further bearish momentum.
• 1.39065: Key level aligning with the 127.2% Fibonacci extension.
• 1.38938: The 141.4% Fibonacci extension, serving as a continuation target.
• 1.38756: The 161.8% Fibonacci level, confirming ongoing selling pressure.
• 1.38414: The 200% Fibonacci extension, the ultimate target if bearish momentum remains robust.

Key Events to Watch

Several key economic releases from both the United States and Canada are scheduled for Monday, November 25, which may significantly impact the USD/CAD pair. In the United States, the Chicago Fed National Activity Index came in at -0.28, signaling declining economic activity compared to prior months. As a composite index, it represents the overall state of economic conditions, and a lower reading usually implies weakened growth momentum, potentially weighing on the US dollar. Similarly, the Dallas Fed Business Activity Index came in at -3.0, highlighting deteriorating conditions in US manufacturing, which could add further pressure on the USD.

On the Canadian side, corporate profits and manufacturing sales are the major data releases in focus. Corporate profits grew by 1.5% in the previous quarter, and any improvement in this reading would suggest better business activity and economic resilience, potentially strengthening the Canadian dollar. Meanwhile, manufacturing sales are projected to decline by 0.8% in October, following a previous 0.5% drop, which indicates continued weakness in this sector.

Overall, these mixed data releases could have varied effects on USD/CAD. Weak US data may reduce demand for the dollar, especially if economic activity and production show further contraction. Conversely, if the Canadian data outperform expectations, such as stronger corporate profits, it could support the Canadian dollar and lead to a dip in USD/CAD.

Additionally, US Treasury auctions for the 3-month, 6-month, and 2-year tenors will be closely watched for indications of shifts in rate expectations and investor demand for government debt. Higher yields may imply expectations for higher interest rates, potentially bolstering the US dollar.

Conclusion

USD/CAD remains under pressure as sellers test key support levels around 1.39308. The next targets, should bearish momentum continue, lie at 1.39065 and lower. Investors should keep an eye on economic releases from both the US and Canada, as they may provide the catalyst for the next price movement.