Consolidates around 23.6% Fibo., 200-day SMA holds key for bulls

VaselineSeptember 9, 2024

0 3 minutes read

Consolidates around 23.6% Fibo., 200-day SMA holds key for bulls

USD/CAD has no firm intraday direction and is influenced by a combination of divergent forces.
A stronger USD provides support, although the rebound in oil prices supports the Loonie and limits gains.
A sustained move beyond the 200-day SMA is needed to support the outlook for any further upside.

The USD/CAD pair is struggling to capitalize on Friday’s intense intraday rally of over 100 pips and is oscillating in a narrow trading band above the mid-1.3500s into the first half of Monday’s European session.

A rally in crude oil prices is seen supporting the commodity-linked Loonie and acting as a headwind for the USD/CAD pair. That said, the prospect of another interest rate cut by the Bank of Canada (BoC), bolstered by Friday’s disappointing jobs report, is limiting the upside for the Canadian dollar (CAD). The US dollar (USD), on the other hand, is benefiting from reduced bets for a further rate cut by the Federal Reserve (Fed) and is proving to be another factor providing support to the currency pair.

Technically, spot prices seem to have found support above the 23.6% Fibonacci retracement level of the steep decline seen in August. That said, the oscillators on the daily chart – although recovering from lower levels – are still not confirming a positive bias. This makes it prudent to wait for a sustained move beyond the all-important 200-day simple moving average (SMA), currently pegged near the 1.3600 threshold, before placing bullish bets around the USD/CAD pair.

Further move up has the potential to lift spot prices to 38.2% Fibo. level, around the 1.3635-1.3640 region. Some further buying should pave the way for further gains and allow the USD/CAD pair to recover the 1.3700 level. The latter should act as a key pivot point which, if decisively removed, could shift the short-term bias in favor of bullish traders.

On the other hand, the Asian session low in the mid-1.3500s now appears to protect the immediate downside. A convincing break below could expose the psychological 1.3500 mark, below which the USD/CAD pair could accelerate the decline back towards the 1.3440-1.3435 region, or the lowest level since March. The downward trajectory could extend further towards the 1.3400 round figure on the way to the late January low around the 1.3360-1.3355 region.

USD/CAD Daily Chart

fxsoriginal

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which hurts the greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials participate in the FOMC—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

VaselineSeptember 9, 2024

0 3 minutes read

USD/CAD Daily Chart

Fed FAQ

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