Bulls need to wait for strength beyond the 200-day SMA/1.3600

• USD/CAD is holding firm near a two-week high amid modest USD strength.
• Upbeat crude oil prices are supporting the Loonie and capping gains for the pair.
• Traders are now looking at this week’s key releases before placing directional bets.

The USD/CAD pair attracted buyers for a fourth consecutive day on Monday and is trading just below the 1.3600 level or above a two-week high during the early European session. The rise is supported by the US dollar (USD), which is near a seven-week high amid expectations for less aggressive policy easing by the Federal Reserve (Fed). Against the backdrop of Fed Chairman Jerome Powell’s relatively dovish remarks last week, upbeat US employment data released on Friday forced investors to further reduce their bets on an excessive rate cut at the FOMC meeting from November.

In fact, the NFP print headline showed that the economy added 254,000 jobs in September, beating even the most optimistic estimates, while the Unemployment Rate fell to 4.1% from 4.2% the previous month . Further details of the report indicated that 72,000 more jobs were added in July and August than previously reported, indicating a still resilient labor market and that the economy is in much better shape. In addition, stronger-than-expected growth in average hourly earnings revived inflation fears and supported the view that the Fed will not need to cut interest rates sharply.

Instead, markets weighed in on the possibility of a further 50 basis point (bps) interest rate cut by the Bank of Canada (BoC) amid signs of economic weakness. This, in turn, is seen undermining the Canadian dollar (CAD) and lending further support to the USD/CAD pair. Meanwhile, concerns over supply disruptions from the Middle East are keeping crude oil prices elevated near a five-week peak, which could provide some support for the commodity-linked Loonie and act as a headwind for the pair currency. Traders may also prefer to wait on the sidelines ahead of this week’s key releases.

The minutes of the FOMC’s September policy meeting will be released on Wednesday, ahead of Thursday’s latest US consumer inflation figures. Apart from this, Friday’s US Producer Price Index (PPI) index will be looked at for clues on the Fed’s rate cut trajectory and will drive USD demand. Investors will also face the release of Canada’s monthly employment details on Friday, which, along with oil price dynamics, should provide a significant boost to the USD/CAD pair. However, the fundamental backdrop supports the outlook for a further short-term appreciation move in spot prices.

Technical perspectives

From a technical perspective, bulls should wait for sustained resistance and acceptance above the 200-day simple moving average (SMA), currently pegged near the 1.3600 threshold, before placing new bets. With the oscillators on the daily chart just starting to gain positive traction, the USD/CAD pair could then move beyond the 1.3615-1.3620 supply zone and test the September high around region 1, 3645-1.3650. Further upside should allow spot prices to target back to recover the round figure of 1.3700.

On the other hand, Friday’s swing low around the 1.3540 area now appears to protect the immediate decline ahead of the psychological 1.3500 mark. Some further selling below the 1.3475-1.3470 area would expose the multi-month low around the 1.3420 region. The latter is closely followed by the round figure of 1.3400, which, if decisively broken, should pave the way for a resumption of the recent well-established downtrend seen over the past two months or so.

USD/CAD Daily Chart