The USD/CAD pair continues its rebound from the weekly low of 1.4338, with the Relative Strength Index (RSI) inching back toward overbought territory. However, the bullish momentum may wane if the RSI fails to sustain a move above the critical 70 level.
Technical Analysis: USD/CAD Price Action
A potential bull-flag formation is taking shape as USD/CAD consolidates within the December trading range. The exchange rate is poised to test the 2024 high of 1.4467, driven by a pattern of higher highs and lows. If a continuation pattern materializes, USD/CAD could extend gains from the 50-Day Simple Moving Average (SMA), currently at 1.4089, as long as it remains above this moving average.
On the daily chart, USD/CAD is challenging a descending channel carried over from December. A break above 1.4480 aligned with the 100% Fibonacci extension could pave the way toward 1.4590, representing the 161.8% Fibonacci extension. However, failure to breach the 2024 high of 1.4467 may negate the bullish setup, increasing the likelihood of a retracement.
Key support levels to watch include:
- 1.4299: April 2020 high
- 1.4210: 78.6% Fibonacci extension
- 1.4040-1.4080: Zone combining the 23.6% Fibonacci retracement and 78.6% Fibonacci extension
Fundamental Outlook
The upcoming US ISM Manufacturing survey is expected to remain steady at 48.4 for December, signaling a potential contraction in the manufacturing sector. A print below 50 could weigh on the US dollar, fueling speculation of lower interest rates as the Federal Reserve continues to unwind its restrictive monetary policies in 2025. Conversely, a better-than-expected ISM reading may support USD/CAD, suggesting a more optimistic growth outlook.
The broader macroeconomic landscape remains a key driver for USD/CAD. A continuation of the pair’s upward trajectory will hinge on breaking the December range and surpassing critical resistance levels. However, a failure to maintain momentum above the April 2020 high could prompt a deeper pullback toward key support zones.
Outlook Summary
- Upside Potential: A break and close above 1.4480 could target 1.4590, supported by bullish momentum and a continuation of the rally.
- Downside Risks: A failure to sustain above 1.4299 may lead to a retest of lower support levels near 1.4210 or even 1.4040.
Key Takeaways
- Monitor RSI levels for signs of fading momentum.
- Watch for breakout opportunities above 1.4467 to validate the bull-flag formation.
- Pay close attention to the US ISM Manufacturing data for its potential impact on USD/CAD.
Additional Market Updates
- GBP/USD: Testing 2024 lows with bearish momentum.
- AUD/USD: Vulnerable to potential changes in RBA policy.
- US Economy: Exceeding growth expectations in 2024.
- 2025 Central Bank Preview: Insights on upcoming monetary policy shifts.
Stay tuned for more analysis on key currency pairs and economic indicators shaping the markets.
