The Canadian Dollar (CAD) has seen significant movement against the U.S. Dollar (USD), with the USD/CAD pair plunging nearly 6.9% from its yearly high, only to rebound off technical support at five-month lows. As the market now braces for potential volatility, the next few days will likely determine the short-term direction for USD/CAD, with key levels and fundamental data points coming into focus.
Technical Outlook: USD/CAD in a Range-Bound Market
Currently, USD/CAD is trading within a defined range, having recently reached a crucial downtrend support. The immediate focus shifts to a potential breakout from this range, with momentum indicators suggesting that the downtrend may be vulnerable if prices remain above trendline support.
The technical chart is showing a near-term consolidation, with a possible price inflection at the lower parallel of the descending pitchfork extending from yearly highs. As of now, the pair is holding steady, but the direction of the breakout will offer clarity for traders in the coming days.
Key Resistance and Support Levels
For traders looking for key breakout levels, here are the main levels to watch:
Resistance Levels:
1.3881-1.39: This zone represents the 2022 high-close and the 2023 high, marking initial resistance for any upward price movement.
1.3978-1.4009: This more significant technical confluence area, backed by the 2022 high, 2020 March weekly reversal close, and the 200-day moving average, is crucial. A breach of this zone would suggest the potential for a larger reversal and a more significant low forming.
1.4176-1.4180: This level may act as a further resistance if a larger rally occurs.
Support Levels:
1.3795: The 61.8% retracement of the late 2023 advance, which is an important support level. A break below this could lead to further declines.
1.3714: A break below the 78.6% retracement of the September advance could signal further downside pressure.
1.3614: This represents the March 2024 high and could be the next major support level.
If USD/CAD breaks below 1.3795, the next target would be 1.3714, followed by 1.3614, and potentially extending to 1.3504/23.
Outlook and Key Economic Data to Watch
The immediate focus is on a breakout from the current range, which will set the tone for the near-term direction. A rally would need to be contained near the 200-day moving average if prices continue to move lower, and a close below 1.3795 would be crucial to signal a resumption of the downtrend.
Next week, important U.S. economic data will be released, notably Core PCE (Personal Consumption Expenditures) and Non-Farm Payrolls (NFP). These releases could influence market sentiment and trigger volatility in the USD/CAD pair. As a result, traders should stay nimble and be prepared for potential swings, especially around these key data releases.
Conclusion
USD/CAD is currently in a short-term range just above downtrend support. The focus is on a breakout from this range, with key levels of support and resistance providing guidance. Watch for any developments in the U.S. inflation data (Core PCE) and NFP releases, as they could dictate the next move in USD/CAD. Keep an eye on weekly closes and use the upcoming economic releases as critical decision-making tools for positioning in the currency pair.
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