- USD/CAD retreats to two-month low, with 200-day SMA 'safety net' just below.
- Hopes for a less aggressive Fed, the risk-on mood continues to weigh on the pair.
- An uptick in oil prices underpins the loonie and also contributes to capping the pair.
The USD/CAD pair remains confined in a narrow trading band through the early European session. The pair is currently meandering around the 1.2770-1.2765 area, just a few pips above a two-month low and the 200-day SMA.
The US dollar meets with a fresh supply and remains well within the striking distance of its lowest level since late June, set in the aftermath of softer US consumer inflation figures on Wednesday. This, in turn, is seen acting as a headwind for the USD/CAD pair and capping spot prices near the 100 DMA breakpoint – now turned resistance.
Following the release of the weaker-than-expected US CPI report for July, on Wednesday, investors rushed to trim their bets for a larger 75 bps Fed rate hike at the September policy meeting. This, along with a softer tone around the US Treasury bond yields and the risk-on impulse in the equity markets, continues to drive flows away from the safe-haven greenback.
The commodity-linked loonie, meanwhile, is gaining support from an uptick in crude oil prices which is exerting some downside pressure on the USD/CAD pair. That said, oil may not sustain its uptrend as concerns grow that a global economic downturn could hit fuel demand. This, along with the overnight hawkish remarks by Fed officials, should limit the USD losses and keep the pair supported.
The mixed fundamental backdrop dovetails with mixed technicals and warrants some caution for bearish traders. Although an overnight break took the pair below the 100-day SMA for the first time since June, the 200-day SMA is likely to pose a major obstacle to bears, where it is currently sitting just below spot at 1.2743. At least a clear break and daily close below the MA would be necessary for the green light on more losses, ideally accompanied by a fundamental development providing added negative confirmation.
Market participants now look forward to the release of the US Producer Price Index (PPI), due later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment will drive the USD demand. Traders will also take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
USD/JPY remains below 158.00 after Japanese data
Soft US Dollar demand helps the Japanese Yen to trim part of its recent losses, with USD/JPY changing hands around 157.70. Higher than anticipated Tokyo inflation passed unnoticed.
AUD/USD weakens to near 0.6200 amid thin trading
The AUD/USD pair remains on the defensive around 0.6215 during the early Asian session on Friday. The incoming Donald Trump administration is expected to boost growth and lift inflation, supporting the US Dollar (USD). The markets are likely to be quiet ahead of next week’s New Year holiday.
Gold hovers around $2,630 in thin trading
The US Dollar returns from the Christmas holidays with a soft tone, although market action seems contained. The positive tone of Asian shares weighs on the Greenback.
Floki DAO floats liquidity provisioning for a Floki ETP in Europe
Floki DAO — the organization that manages the memecoin Floki — has proposed allocating a portion of its treasury to an asset manager in a bid to launch an exchange-traded product (ETP) in Europe, allowing institutional investors to gain exposure to the memecoin.
2025 outlook: What is next for developed economies and currencies?
As the door closes in 2024, and while the year feels like it has passed in the blink of an eye, a lot has happened. If I had to summarise it all in four words, it would be: ‘a year of surprises’.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.