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USD/CAD Extends Gains as Dollar Hits Three-Month High

USD/CAD Extends Gains as Dollar Hits Three-Month High

Market Overview

On Thursday, the U.S. dollar surged to an 11-week high, buoyed by improving sentiment around a possible victory for Donald Trump and reduced expectations of aggressive rate cuts from the Federal Reserve. This optimism boosted the dollar broadly, allowing the USD/CAD pair to gain significant traction, pushing it closer to key resistance levels.

The dollar’s recent strength reflects a shift in market sentiment, with participants viewing a potential Trump victory as a signal for increased economic resilience. Moreover, with the reduced probability of significant rate cuts, investors are betting on continued stability in U.S. monetary policy, which has provided additional support to the greenback.

Technical Analysis

In the hourly chart, the USD/CAD pair has rebounded sharply after hitting a low of 1.37466, signaling renewed bullish momentum. The price has since moved above the mid-Bollinger band, indicating buying interest. Currently, it faces resistance at 1.37700. A decisive move above this level would pave the way for the next targets at 1.37772 and 1.37817, both of which could act as critical hurdles for further gains.

The Relative Strength Index (RSI) has crossed the 50 level, highlighting increased buying pressure. The RSI’s bounce from the 30 level formed a “failure swing” pattern, which typically signals a reversal to the upside. Additionally, the MACD has transitioned into positive territory, further affirming the market’s bullish outlook. The 100-period moving average and the upper Bollinger band overlap above current levels, potentially creating a strong resistance zone that could slow down any upward momentum.

Alternative Scenario

However, if the price fails to clear the resistance at 1.37772 and falls below the support at 1.37466, it could invalidate the bullish outlook. This breakdown would likely lead to an extended downside, with bears aiming to push the pair lower in the short term.

Key Levels Overview

Resistance Levels:

  • Resistance 1: 1.37772
  • Resistance 2: 1.37817

Current Price: 1.37702

Support Levels:

  • Support 1: 1.37655
  • Support 2: 1.37583
  • Support 3: 1.37466

Key Events to Watch

Thursday is set to be a busy day for the U.S. economy, with crucial data releases, including monthly retail sales, weekly jobless claims, and the Philadelphia Fed Manufacturing Index. These reports could introduce significant volatility, impacting not only the U.S. dollar but also its major currency pairs, including USD/CAD. Strong economic data would likely solidify the dollar’s gains, while weaker-than-expected figures might challenge its current momentum.

Conclusion

The USD/CAD pair is navigating a pivotal resistance zone, with the dollar benefitting from improving sentiment and reduced rate cut expectations. A successful break above 1.37772 could open the path for higher gains, while failure to do so might see sellers regain control. Market participants should closely monitor U.S. economic releases for further direction, as any deviation from expectations could significantly affect the pair’s movement.

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