USD/CAD experienced fluctuations as the pair approached the previous downtrend line, seeking support and momentarily rebounding. The market’s attention is now directed towards the forthcoming FOMC meeting, which could influence the trajectory of the US dollar, determining if it continues its recovery or declines further. The US dollar exhibited significant volatility against the Canadian dollar during Monday’s trading session, notably as we are currently evaluating the previous downtrend line for potential support.
This indicates that the market may be attempting to reverse its course and exhibit signs of recovery, as the US dollar appears to be oversold. While it’s true that we saw robust Canadian employment figures during last Friday’s session, the underlying economic conditions in Canada remain somewhat more uncertain compared to those in the United States. As the Federal Reserve anticipates a rate cut on Wednesday, market participants will closely monitor the accompanying statement and the subsequent FOMC press conference.
The critical inquiry revolves around whether the Federal Reserve is poised to maintain a swift series of interest rate cuts or if they will adopt a “data dependent” approach. The phrase data dependent essentially signals uncertainty regarding future actions, implying that conditions may need to deteriorate before any further cuts are made. If that turns out to be true, I anticipate a significant rally in the US dollar later this week.
Considering the current situation, we are approaching a potential breakdown, which could lead the pair to the 1.37 level in the near term. However, I anticipate that the upcoming days will be influenced by the FOMC meeting, resulting in a likely sideways movement as traders assess their next steps with this pair. Should we experience a rally from this point, it is important to monitor the 200-day EMA, which is presently situated at the 1.3919 level. This could serve as a potential barrier and may pave the way for a subsequent move towards the 1.40 level.