The US dollar pair has appreciated against the Canadian dollar once more, indicating a potential reversal in trend. We will need to monitor the situation closely to determine if momentum can be established, as that remains the key element currently absent from the charts. On Friday, a nice hammer was formed last week, and since then, there has been a slight bounce indicating signs of life as market participants continue to regard the 1.36 level below as a significant support level for USD/CAD. Currently, USD/CAD is approaching the 1.37 level. It is important to highlight that the interest rate differential continues to favor the US dollar, and there remains considerable uncertainty regarding the potential decline of rates in America.
The Bank of Canada is likely to maintain its current stance for the time being, having already completed a significant cycle of rate reductions. However, the Canadian dollar is currently lacking significant support from oil, which limits upside pressure against USD/CAD. It is unlikely to appear here, unless it is exceptionally robust, as the United States is currently producing 13.5 million barrels of oil daily. USD/CAD exhibits a notable divergence, as it tends to disregard oil approximately 98% of the time.
Considering this, I acknowledge that the 1.38 level above represents a significant obstacle for USD/CAD, and surpassing it will require considerable effort. Should USD/CAD surpass that level, the pair has the potential to significantly rise. It appears we are currently observing a market that is in the process of establishing its range for the upcoming months. If USD/CAD moves below the 1.3550 level, we could see a substantial decline ahead. However, examining the longer-term chart—specifically over the past 3 to 4 years—it is clear that USD/CAD remains firmly in an uptrend, even though it is currently below the moving averages.
Given the current circumstances, I am still anticipating a bounce in USD/CAD. The Canadian dollar is unlikely to emerge as one of the stronger currencies globally, with USD/CAD serving as its primary benchmark. While it’s possible for USD/CAD to decline further, I don’t foresee a complete breakdown. In fact, I believe this bounce in USD/CAD may signify the initial efforts to identify the bottom.