USD/CAD Continues the Move to 1.31 as the Market Digests Powell’s Speech

It is a quiet day for the USD/CAD. There are no material stats from Canada or the US to provide the Loonie with direction. The lack of stats will leave the pair in the hands of crude oil prices and market risk sentiment. Progress towards an Iran deal would likely be crude oil and Loonie price negatives.

Market sentiment towards the global economic outlook and the supply and demand imbalances will also need consideration.

With the Bank of Canada set to deliver the September monetary policy decision next week, the markets will begin to consider the BoC’s options. Currently, economists expect the BoC to stand pat, which supports a USD/CAD move towards 1.31.

With Canada seeing a housing sector in cooldown mode, the BoC appears to have little wriggle room to curb inflation. The only good news is that crude oil prices continue on a downward trend.

USD/CAD Price Action

At the time of writing, the USD/CAD was up 0.17% to $1.30513. A bullish morning saw the USD/CAD rise to a high of 1.30759 before easing back.

Technical Indicators

The USD/CAD will need to avoid the 1.2992 pivot to target the First Major Resistance Level (R1) at 1.3080.

Risk aversion stemming from Powell’s speech on Friday and a fall in crude oil prices would support a breakout from the morning high of 1.30759.

In the event of an extended rally, the USD/CAD should test sellers at 1.31 before any pullback. However, the USD/CAD would likely fall short of the Second Major Resistance Level at 1.3131.

The Third Major Resistance Level (R3) sits at 1.3270.

A fall through the pivot would bring the First Major Support Level (S1) at 1.2941 and sub-1.29 back into play.

Barring a marked pickup in risk appetite or dovish FOMC member chatter, the USD/CAD should steer clear of the Second Major Support Level (S2) at 1.2853.

The Third Major Support Level (S3) sits at 1.2714.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bullish signal. This morning, the USD/CAD pair stood above the 50-day EMA, currently at 1.29658.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering positive signals for the USD/CAD pair. The USD/CAD break out from the 50-day EMA (1.29658) supports a return to 1.31 for the first time since July 15.

However, a USD/CAD fall through the 50-day EMA would bring S1 (1.2941) into play.

The US Session

It is a quiet start to the week, with no US stats for the markets to consider following Powell’s Jackson Hole speech.

The lack of stats will leave the DXY in the hands of any FOMC member chatter, with the bulls eying a return to 110.