1.3600 remains the key resistance for USD bulls

• USD/CAD remains sideways below 1.3600 with Fed policy in focus.
• Traders remain divided over the potential size of the Fed’s rate cut.
• Firm speculation for an aggressive BoC policy easing cycle is weighing on the Canadian dollar.

The USD/CAD pair is trading in a tight range below the round level resistance of 1.3600 in the North American session on Friday. The Loonie asset is struggling for direction as investors focus on the Federal Reserve’s (Fed) monetary policy meeting, which is scheduled for Wednesday.

The Fed is almost certain to start cutting interest rates at Wednesday’s meeting as officials worry about deteriorating labor market conditions, with confidence growing that inflationary pressures will sustainably return to the bank’s 2 percent target.

Meanwhile, traders remain divided over the likely size of the Fed’s interest rate cut. The CME FedWatch tool shows that the probability that the Fed will cut interest rates by 50 basis points (bps) to 4.75%-5.00% in September rose sharply to 45% from 28% a day ago.

On the data front, the University of Michigan (UoM) reported stronger-than-expected preliminary Consumer Sentiment Index (CSI) data for September. Sentiment data rose to 69.0 from expectations to remain almost flat at 68.0.

In the Canadian region, a decent recovery in oil prices fails to lift the Canadian dollar (CAD). The currency remains weak as the Bank of Canada’s (BoC) policy easing cycle is expected to be more aggressive than other G7 central bankers. The BdC has already cut its key lending rates by 75 bps and is expected to cut them further in the rest of the year.

USD/CAD is offering a mean retracement near the 200-day Exponential Moving Average (EMA), which is trading around 1.3620. The short-term outlook for the pair appears to be bearish as the 14-day Relative Strength Index (RSI) has moved into the 20.00-60.00 range from 40.00-80.00.

Horizontal resistance from the May 15 low of 1.3590 continues to act as a major barricade for US dollar bulls.

An upward recovery above the August 21 high of 1.3626 would take the asset towards the August 19 high of 1.3687 and the August 15 high of 1.3738.

On the other hand, a further correction below the April 5 low of 1.3540 will pull the asset towards the psychological support of 1.3500, followed by the September 6 low of 1.3466.

USD/CAD Daily Chart