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USD/CAD Forecast: Stretched Ahead of Fed

By Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
  • The US dollar has been somewhat sideways during the last couple of sessions, but especially on Tuesday.
  • All things being equal, this is a market that does look a little bit stretched.
  • And I'd point out that the stochastic oscillator is crossing over in the overbought condition.
  • So, it does look like we could get a little bit of a pullback.

I think a lot of this comes down to not only being overbought, but also the fact that the Federal Reserve has a meeting and interest rate decision on Wednesday. And I think that will move this USD/CAD pair quite significantly. The question at this point is, can we break down enough to offer value with the US dollar? The 50 day EMA is sitting around the 1.37 level and rising.

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On a Pullback

So, I would like to see a pullback to that area, but I don't know whether or not we have that type of move just waiting to happen. We could pull back to the 1.38 level, which is an area that I think also offers support, but ultimately this is a market that I think eventually we could try to break above the 1.39 level. The 1.39 level is an area that a lot of people had paid attention to back in the middle of 2023 and therefore market memory comes into play, and it could be a bit difficult to get above. Either way I would say that with the way this pair has stretched the momentum is certainly going to suffer. That being said, it's worth noting that the Federal Reserve is expected to stay flat during the Wednesday session as far as changing monetary policy, but it'll be all about the statement.

USD/CAD Forecast Today 31/7: Stretched Ahead of Fed (graph)

The Bank of Canada has cut a couple of times now, so it makes sense that the US dollar continues to strengthen against it. And although I do think that we have a pullback coming, the reality is that's just a simple buy on the dip situation from everything I see here. It's not a market that I want to start selling anytime soon.

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Christopher Lewis
About Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
 

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