USD/CAD bounces up, but can it keep the momentum?

USD/CAD recoups drop below EMAs as March tariffs become reality.
Technical indicators suggest quick rebound is fragile; focus on 1.4470.

Christina Parthenidou XM

USD/CAD made a strong comeback just when traders were getting nervous about the bearish correction below the 20- and 50-day exponential moving averages (EMAs). Surprising news that the US president will not extend the monthly pause, and tariffs on Canadian, Mexican and Chinese imports could happen next week after the March 4 deadline fueled fresh demand for the greenback. Having set a solid footing near the 1.4150 support area, the pair accelerated straight towards the key resistance of 1.4470.

While the rebound is encouraging, technical indicators suggest that this could be a fragile recovery. The RSI and the stochastic oscillator are already knocking on overbought territory, meaning the rally could run out of steam unless there is a solid push past 1.4470. If that level breaks, the price may initially test the 1.4530 level before surging towards the 2020 peak of 1.4667. And if the bulls stay in control, the elusive 1.4800 round level could be back on the radar.

On the downside, the 20- and 50-day EMAs coupled with the 38.2% Fibonacci mark of 1.4270 could limit selling pressures. A clear close below this floor could send the pair sliding back to 1.4100-1.4150. Failure to hold there may confirm an extension towards the 1.4000 psychological level and the 200-day SMA.

In brief, USD/CAD’s latest bounce is promising but don’t pop the champagne just yet. If the pair can’t decisively clear 1.4470, this could turn into a classic bull trap.

Author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics.

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