USD/CAD Buyers Retreat Ahead of Fed Rate Decision

Market Overview

The U.S. dollar experienced a partial retracement of recent gains during Thursday’s trading, largely driven by post-election excitement fading and a renewed focus on the economic realities that persist. Market participants have shifted their attention back to the ongoing concerns surrounding a cooling labor market and uncertainties about economic growth prospects. As these worries linger, USD/CAD traders are taking a more cautious stance.

Meanwhile, crude oil prices have found support amidst intensifying supply concerns, fueled by geopolitical tensions and approaching adverse weather conditions impacting key production areas. This stabilization in oil prices provides some underpinning strength to the Canadian dollar, given its economy’s strong ties to energy exports.

The upcoming Federal Reserve decision has also played a significant role in today’s cautious sentiment. With speculation around a 25-basis point rate cut, there is a degree of hesitation among USD bulls as they await clarity on the Fed’s path forward, especially given concerns over economic softness.

Technical Analysis

On the four-hour chart, USD/CAD has pulled back after touching its two-year high, indicating a potential shift in momentum. Sellers are now attempting to push the price below the 1.38846 level, which coincides with the lower boundary of the Ichimoku cloud—a significant technical barrier. A confirmed break below this level would expose the currency pair to further downside, with key support levels emerging at 1.38646, 1.38392, and ultimately 1.38112.

However, a bullish reversal could be initiated if buyers can reclaim territory above the two-year resistance level at 1.39580. Such a move would indicate renewed strength for the U.S. dollar, likely leading to another attempt to push higher in the face of an uncertain economic backdrop.

Oscillator Indicators

Oscillator readings currently display a mixed picture. The RSI is hovering in neutral territory, suggesting a lack of strong directional conviction, while the MACD reflects a similar sentiment, showing only mild fluctuations without a clear bias. Moving averages provide a similarly mixed signal, pointing to a market in consolidation mode as it digests incoming economic developments.

Key Technical Levels Overview

Resistance Levels:

• Resistance 1: 1.39126
• Resistance 2: 1.39580

Current Price: 1.38836

Support Levels:

• Support 1: 1.38646
• Support 2: 1.38392
• Support 3: 1.38112

Key Events to Monitor

Traders are closely eyeing several key events on Thursday that could significantly impact the USD/CAD pair. The Federal Reserve’s decision to potentially cut rates by 25 basis points, coupled with the subsequent speech by Fed Chair Jerome Powell, will be pivotal in providing insights into future monetary policy. Additionally, the weekly U.S. jobless claims report will shed light on the ongoing health of the labor market.

Furthermore, Donald Trump’s first speech as the newly elected President is likely to outline economic priorities that could influence market sentiment and potentially temper the Fed’s dovish inclinations. The implications of the administration’s upcoming economic policies will be a crucial determinant of the U.S. dollar’s trajectory.

Conclusion

USD/CAD is experiencing downward pressure ahead of the Fed’s rate decision, as sellers attempt to capitalize on weakening U.S. economic indicators. The Fed’s upcoming policy decision and Powell’s remarks will be decisive in shaping the near-term outlook.