Fundamental Overview
The USD continues to be under pressure as the positive tariffs talks on Monday eased the trade war fears and weighed on the greenback. In fact, trade war fears have been the only thing keeping the bid under the USD as interest rate expectations and economic data took the second place in importance.
As a reminder, the repricing in rate cuts expectations reached the peak after the last US NFP report and then the market returned into a dovish pricing following the benign US inflation data (the market is still pricing roughly two rate cuts for 2025).
Today, we get the January NFP and it could be another good report. That might lead to a short-term relief rally for the US Dollar but as we've seen with the US Job Openings data, the labour market continues to normalise and it's not a source of inflationary pressures anymore. So, the potential US Dollar rally might be faded.
That doesn't mean that the Fed will cut more than the two times projected for this year, but it also doesn't call for a more hawkish repricing yet. So, the path of least resistance for the US Dollar (barring negative tariffs outcomes) might remain to the downside as a more dovish path going forward looks more probable.
On the CAD side, the focus has been entirely on the potential trade war with the US, so the data didn’t matter much. Nonetheless, the positive talks on Monday and the pause in tariffs gave the Loonie a strong boost with the pair falling back into the key 1.4280 support. The recent data from Canada has been pointing to gradual improvement after the aggressive rate cuts which might now start to be reflected in the exchange rate as the trade war fears abate.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD dropped all the way back to the key support around the 1.4280 level. This is where the buyers will likely step in with a defined risk below the support to position for a rally back into the highs. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into new lows.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor resistance zone around the middle of the range where the price got rejected from a couple of times in the weeks. If we get a pullback into that, we can expect the sellers to step in with a defined risk above the level to position for a break below the key support. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 1.4467 level next.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as we now have this mini-range between the 1.4280 support and the 1.4370 resistance. From a risk management perspective, it would be much better to wait for the US NFP report as any technical setup can be invalidated in a blink of an eye when the data gets released. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the Canadian Employment data and the US NFP report.
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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