In Tuesday’s European session, the USD/CAD pair remains stagnant near the key round-level support of 1.3700, reflecting the Loonie’s vulnerability amidst a weakening US Dollar amid improved market risk appetite.
S&P 500 futures have shown modest gains during the London session, contributing to a growing preference for riskier assets as investors perceive a lack of immediate escalation in Middle East tensions. Meanwhile, 10-year US Treasury yields hover around 4.63%, with investor attention turning towards the upcoming release of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, scheduled for Friday. Concurrently, the US Dollar Index (DXY) experiences a marginal decline to 105.96.
Market sentiment is poised to be significantly influenced by underlying inflation data, particularly in shaping expectations regarding potential Federal Reserve (Fed) rate cuts, anticipated to commence from the September meeting. Forecasts suggest a softening of the annual core PCE Price Index to 2.6% from February’s 2.8%, with monthly inflation steadily increasing by 0.3%.
In contrast, the Canadian Dollar has demonstrated relative strength against the US Dollar in recent trading sessions. However, concerns arise as investors speculate the possibility of the Bank of Canada (BoC) initiating interest rate reductions sooner in response to easing price pressures. Notably, the BoC’s preferred inflation gauge, excluding eight volatile items, softened to 2% in March, prompting discussions among policymakers regarding potential rate cuts.
USD/CAD witnessed substantial selling pressure last week following a stalled rally near 1.3850. The asset experienced an uptick subsequent to a breakout from the Ascending Triangle chart pattern observed on the daily timeframe. Noteworthy, the 20-day Exponential Moving Average (EMA) near 1.3674 is poised to serve as a crucial support level for US Dollar bulls.
The 14-period Relative Strength Index (RSI) indicates a return to the 40.00-60.00 range, suggesting a temporary conclusion to bullish momentum while maintaining an upside bias.
Looking ahead, a retracement towards the 20-day EMA around 1.3674 presents a potential buying opportunity for market participants. Resistance levels are anticipated near the November 22, 2023, high at 1.3766, followed by the psychological barrier of 1.3800.
Alternatively, a breakdown below the April 9 low around 1.3547 would expose the asset to psychological support at 1.3500 and the March 21 low around 1.3456.
