. USD/CAD Finds Support at 1.3600 as Focus Shifts to US Core PCE Inflation

USD/CAD Finds Support at 1.3600 as Focus Shifts to US Core PCE Inflation

USD/CAD Finds Support at 1.3600 as Focus Shifts to US Core PCE Inflation

28 May 2024

USD/CAD finds temporary support around 1.3600 as attention turns to US core PCE inflation data.

FUNDAMENTAL OVERVIEW:

  • USD/CAD rebounds from 1.3600 as the US Dollar strengthens amid reduced expectations for Fed rate cuts.
  • Fed officials require sustained inflation reduction before lowering interest rates.
  • The BoC is anticipated to begin easing its restrictive monetary policy in June.

The USD/CAD pair finds temporary support around 1.3600 during Tuesday’s New York session. The Loonie attracts buying interest as the US Dollar recovers from a recent weekly low. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, rebounds from 104.35.

Buying interest in the US Dollar is driven by reduced expectations of a Federal Reserve rate cut in September. This shift has impacted market sentiment, with the S&P 500 opening slightly negative. Meanwhile, 10-year US Treasury yields have recovered to 4.48%, as diminishing Fed rate-cut prospects benefit US bond yields.

Traders are reducing Fed rate-cut bets due to uncertainty about the disinflation process. April’s Consumer Price Index (CPI) report indicated a slowdown in inflation after three months of persistent highs. However, Fed officials think this slowdown may not be sustainable.

Meanwhile, the Canadian Dollar could face pressure as investors anticipate the Bank of Canada (BoC) might begin reducing interest rates starting in June. Market participants believe the conditions are favourable for a rate cut, given that the BoC’s preferred core CPI, which excludes eight volatile components, has decreased to 1.6% annually. Additionally, Canada’s retail sales have been contracting for the past three months.

USD/CAD TECHNICAL ANALYSIS DAILY CHART:

Technical Overview:

USD/CAD is trading within a down channel.

USD/CAD is moving below all the Moving Averages (SMA).

The Relative Strength Index (RSI) is in the Neutral zone, while the Stochastic oscillator suggests a Positive trend.

Immediate Resistance level: 1.3648

Immediate support level: 1.3612

HOW TO TRADE USD/CAD

USD/CAD Stumbles After Rally, Eyes Support: After an initial surge, USD/CAD pulled back, forming a series of lower lows. Recently, it has created a potential bullish reversal pattern (bullish engulfing) at the support level. If the price holds above this support zone, it could indicate further gains in the coming days.

TRADE SUGGESTION- STOP BUY– 1.3656, TAKE PROFIT AT- 1.3698, SL AT- 1.3636.