USD/CAD Analysis: Flirts with 1.3700 amid post-FOMC USD selling, 200-hour SMA holds the key

The USD/CAD pair attracts some sellers for the second straight day on Thursday and drifts back closer to the previous day's low, around the 1.3700 mark touched in the aftermath of the crucial FOMC policy decision. As was widely anticipated, the Federal Reserve (Fed) kept the benchmark interest rates unchanged at a range of 5.25% to 5.5% for the sixth meeting in a row. In the post-meeting press conference, Fed Chair Jerome Powell noted that the central bank wants to gain greater confidence that inflation will continue to fall before cutting rates. Powell, however, downplayed speculations about any further rate hikes, which keeps the US Dollar (USD) depressed near a two-week low touched last Friday and turns out to be a key factor weighing on the currency pair. 

Meanwhile, Crude Oil prices reverse a part of the overnight slump to the lowest level since March 13, snapping a four-day losing streak, on expectations the lower levels may prompt the US to start replenishing its strategic reserve. This, in turn, is seen underpinning the commodity-linked Loonie, which further contributes to the offered tone surrounding the USD/CAD pair. That said, a modest rebound in the US Treasury bond yields acts as a tailwind for the Greenback and should help limit the downside for the major. Traders might also prefer to wait on the sidelines ahead of the release of the US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday – for cues about the Fed's rate-cut path and before positioning for a firm near-term trajectory. 

In the meantime, Thursday's US economic docket – featuring the release of Challenger Job Cuts, the usual Weekly Initial Jobless Claims and Trade Balance data – might provide some impetus later during the North American session. Apart from this, the US bond yields and the broader risk sentiment will drive the USD demand, which, along with Oil price dynamics, should produce short-term trading opportunities around the USD/CAD pair. Nevertheless, the aforementioned fundamental warrants some caution before confirming that this week's recovery from the 1.3630 area has run its course and placing fresh directional bets.

Technical Outlook

From a technical perspective, the 1.3700 round figure coincides with the 200-hour Simple Moving Average (SMA) and should act as a pivotal point for intraday traders. A sustained break below will expose the weekly low, around the 1.3630 region, which if broken decisively will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart have been losing traction, the USD/CAD pair might then turn vulnerable to weaken further below the 1.3600 mark and challenge the very important 200-day SMA support, currently pegged near the 1.3550 zone.

On the flip side, the daily swing high, around the 1.3735-1.3740 region, is likely to attract some sellers near the 1.3780-1.3785 area or the weekly top. Some follow-through buying beyond the 1.3800 mark could lift the USD/CAD pair back towards the 1.3845 region, or the YTD peak touched in April. The upward trajectory could extend further towards the 1.3900 neighborhood, or November 2023 swing high.