- USD/CAD fluctuated on Monday as the pair tested the former downtrend line for support and briefly bounced.
- Market focus now shifts to the upcoming FOMC meeting, which may determine whether the US dollar extends its recovery or breaks lower.
The US dollar has been all over the place against the Canadian dollar during trading on Monday, as interestingly enough, we are testing the previous downtrend line for support. And we did in fact bounce a bit later in the day. So that suggests that perhaps the market is trying to turn things around and show signs of life because the US dollar is probably oversold.
Granted, we've recently gotten very strong Canadian employment during the Friday session last week, but the reality is that the economic situation in Canada is still a bit more precarious than the United States. While the Federal Reserve is expected to cut rates on Wednesday, the markets will be paying attention to the statement and the FOMC press conference afterwards.
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The real question is going to be whether or not the Federal Reserve looks likely to simply continue to cut interest rates in a rapid-fire succession or if they are going to be “data dependent”. If they use the phrase data dependent, that is essentially code for they don't know what they're going to do, and things will have to get worse before they cut further. If that ends up being the case, then I expect the US dollar to rally quite massively later in the week.
Breakdown Still Very Possible
That being said, we are on the precipice of a bit of a breakdown here and that could kick the pair down to the 1.37 level in the short term, but I suspect the next couple of days might be about the FOMC meeting and therefore might be somewhat sideways as traders try to figure out what to do next in this pair. If we rally from here, keep an eye on the 200-day EMA currently at the 1.3919 level, as it could be a bit of a barrier and open up the possibility of a move to the 1.40 level after that.
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