USD/CAD Price Forecast: Going nowhere in a hurry as bull-bear tussle continues

The USD/CAD pair gains positive traction for the second straight day on Friday and climbs to the 1.3675 region during the early part of the European session amid a modest US Dollar (USD) strength. Data released on Thursday pointed to a still resilient US labor market, which, along with signs that inflation could accelerate in the second half of the year, assists the USD to build on the overnight bounce from a two-and-a-half-week low. However, a combination of factors might hold back traders from placing fresh bullish bets, warranting caution before positioning for an extension of the recent bounce from the 1.3575 area, or a three-week low touched on Wednesday.

The US Department of Labour reported that the number of US citizens submitting new applications for unemployment insurance fell for the sixth straight week, to 217K during the week ended July 19, or the lowest since mid-April.  Furthermore, the S&P Global's US Composite PMI rose to 54.6 in July from 52.9 in the previous month, marking the 30th straight month of expansion. The growth was concentrated in the services sector, which offsets weakness in the manufacturing sector. Additional details of the report revealed strong employment and intensifying price pressures across both the manufacturing and services sectors, which might force the Fed to maintain the status quo.

Meanwhile, US President Donald Trump continued to dial up the pressure on Fed Chair Jerome Powell and expressed his desire for lower interest rates during a rare visit to the central bank's headquarters. Furthermore, investors remain worried that the Fed's independence could be under threat on the back of mounting political interference. This, along with the uncertainty about the potential economic impact of higher US import tariffs, might hold back the USD bulls from placing aggressive bets. The Canadian Dollar (CAD), on the other hand, is undermined by Trump's punishing 35% tariffs on imports from Canada, which will go into effect on August 1.

However, a steady ascent in Crude Oil prices could underpin the commodity-linked Loonie and contribute to capping any further appreciating move for the USD/CAD pair. Traders now look forward to the release of US Durable Goods Orders data for some impetus later during the North American session. The focus, however, will remain glued to the crucial two-day FOMC monetary policy meeting, starting next Tuesday. Nevertheless, spot prices seem poised to register modest losses for the first time in three weeks and remain at the mercy of USD price dynamics.

USD/CAD daily chart

Technical Outlook

From a technical perspective, the USD/CAD pair has been oscillating in a broader trading range over the past two months or so. This marks indecision among traders and warrants some caution before placing fresh bullish bets amid neutral oscillators on the daily chart.

Hence, any subsequent strength beyond the 1.3700 mark is more likely to attract fresh sellers and remain capped near the 1.3755 horizontal zone. This is closely followed by the monthly swing high, around the 1.3775 region, which, if cleared, will confirm a trading range breakout and set the stage for some meaningful upside.

On the flip side, the 1.3650 area now seems to protect the immediate downside ahead of the 1.3600-1.3590 region. Some follow-through selling below the weekly low, around the 1.3575 region, might expose the 1.3540 area, or the year-to-date trough touched in June, before the USD/CAD pair eventually drops to the 1.3500 psychological mark.