- The USD/CAD touched a high of nearly 1.36135 yesterday in the wake of the interest rate hike from the Bank of Japan.
- While many technical traders may not make the connection, behavioral sentiment played a role in the sudden surge higher in the USD/CAD yesterday and across the broad Forex market, this as global financial institutions were made to understand central banks are battling inflation in many spheres.
While the surge higher in the USD/CAD did reverse lower and the currency pair is now traversing the 1.35840 vicinity, values remain elevated. The USD/CAD highs yesterday touched an interesting and not so coincidental resistance level last seen on the 14th of December 2023. That was precisely when the Federal Reserve delivered its rather dovish FOMC Statement and led financial institutions to believe several interest rate cuts would be seen in 2024. A low of nearly 1.31775 was seen in late December and early January.
Inflation has Not Gone Away and the USD/CAD is Choppy
The move to highs yesterday and sustained trading within the upper limits of it mid-term price range should worry day traders. Inflation from the U.S remains sticky as proven last week via the surprisingly strong PPI reports. Yesterday Canada released CPI data and while the numbers were slightly weaker than expected, no parades about economic recovery will be started. The Fed’s rhetoric in December appears now to have been interpreted as overly optimistic by financial institutions.
While the U.S Federal Reserve is not going to change its Federal Funds Rate today, the tone of the FOMC Statement will cause nervous reactions in the USD/CAD. The outlook from the Fed is likely to sound cautious today as the U.S central bank talks about inflation and the need to see additional signs of erosion. Day traders should expect volatility before and after the Fed’s monetary policy statement, but trading may actually prove to be sideways and choppy.
Outlook and the USD/CAD for the Near-Term
Support and resistance levels technically will widen in the coming hours as large traders start to positions for the FOMC drama from the U.S, retail speculators should brace for rather wicked conditions which will prove fast and reactive. Entry price orders are urged for USD/CAD participants who want to dip their toes into the betting landscape during the Federal Reserve’s pronouncements.
- Resistance near the 1.35900 ratio should be watched; if it proves vulnerable another test of the 1.36000 level would not be a surprise.
- Traders who believe the USD/CAD has been overbought should be cautious, take profit and stop loss orders will be needed to guard against surges, particularly if a lot of leverage is being used.
Canadian Dollar Short Term Outlook:
Current Resistance: 1.35890
Current Support: 1.35760
High Target: 1.36290
Low Target: 1.35540
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