USD/CAD Analysis: Holds above ascending trend-line, 200 DMA ahead of key data/event risks

USD/CAD languishes near the weekly low and is pressured by a combination of factors.
Bullish Oil prices underpin the Loonie and exert pressure amid modest USD weakness.
Investors now look to the US CPI, BoC policy decision and the FOMC meeting minutes.

Haresh Menghani FXStreet

The USD/CAD pair remains on the defensive for the third straight day on Wednesday and drops to a fresh weekly low, around mid-1.3400s during the Asian session. The recent surprise supply cut by OPEC+ continues to provide some support to Crude Oil prices, which, in turn, is seen underpinning the commodity-linked Loonie. The US Dollar (USD), on the other hand, is weighed down by growing acceptance that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle amid signs of slowing economic growth. In fact, Philadelphia Fed Bank President Patrick Harker said on Tuesday that he feels the US central bank may soon be done raising interest rates.

Harker, however, added that the Fed is fully committed to bringing inflation back down to the 2% target. Adding to this, New York Fed President John Williams noted that the central bank's policy path will depend on incoming data. Moreover, markets have been pricing in a greater chance of another 25 bps lift-off at the next FOMC meeting in May. Hence, the focus will remain glued to the release of the latest US consumer inflation figures, due later during the North American session. The crucial US CPI report will provide clues about the Fed's rate-hike path, which will play a key role in driving the USD demand in the near term and provide a fresh directional impetus to the USD/CAD pair.

A softer US CPI print will reaffirm bets for multiple rate cuts, starting as early as July through to the end of the year, and weigh heavily on the Greenback. The market attention will then turn to the FOMC meeting minutes, scheduled later during the US session this Wednesday. Apart from this, investors will also take cues from the Bank of Canada (BoC) monetary policy decision and the Energy Information Administration (EIA) report on US crude inventories. The latter will influence Oil price dynamics and further contribute to producing trading opportunities around the USD/CAD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

Technical Outlook

From a technical perspective, bearish traders might now wait for a sustained break below an upward sloping trend-line extending from the August 2022 swing low. This is closely followed by the very important 200-day Simple Moving (SMA), currently around the 1.3400-1.3390 region. Some follow-through selling will confirm a fresh breakdown and make the USD/CAD pair vulnerable. Spot prices might then accelerate the fall towards the 1.3315 intermediate support en route to the 1.3300 mark and the 1.3270-1.3265 horizontal zone.

On the flip side, any meaningful recovery attempt might now confront resistance near the 1.3500 psychological mark ahead of the 1.3525-1.3530 region. A convincing breakthrough the latter will reaffirm the ascending trend-line support and trigger a short-covering move. The subsequent strength could then assist the USD/CAD pair to reclaim the 1.3600 round-figure mark and climb further to the next relevant hurdle near the 1.3660-1.3665 horizontal support breakpoint, now turned resistance.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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