USD/CAD Eyes A Return to sub-1.2950 as Policy Divergence Bets Unwind

It was a quiet start to the week for the USD/CAD. Following the Bank of Canada’s policy decision, last Wednesday, disappointing employment figures from Canada failed to disrupt the Loonie comeback.

A pickup in appetite for riskier assets and rising crude oil prices have weighed on the USD/CAD pairing ahead of the US opening bell. A lack of progress towards a nuclear agreement with Iran delivered morning support, with WTI up 1.05% to $87.7.

With the markets having baked in a 75-basis point Fed rate hike this month, the markets will need to wait for tomorrow’s US CPI numbers for any possible shift in sentiment.

Near-term, the Bank of Canada and the Fed are aligned, delivering Loonie support. However, headwinds linger, with Canada’s housing sector woes and the labor market needing a watchful eye.

USD/CAD Price Action

At the time of writing, the USD/CAD was up 0.20% to 1.29950. A bullish morning saw the USD/CAD slide from an early high of 1.30451 to a low of 1.29778.

Technical Indicators

The USD/CAD will need to move through the 1.3032 pivot to target the First Major Resistance Level (R1) at 1.3083 and the Friday high of 1.30939. However, market risk sentiment will need to deteriorate materially to support a return to 1.3050. US economic data could test investor sentiment later in the day.

In case of a ‘risk-off’-fueled extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3144 and resistance at 1.3155. The Third Major Resistance Level (R3) sits at 1.3257.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2971 in play. Weak stats from the US and a pickup in risk appetite through the US session would bring the Second Major Support Level (S2) at 1.2920 into view. The Third Major Support Level (S3) sits at 1.2808.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal. This morning, the USD/CAD pair sat below the 200-day EMA, currently at 1.29969.

The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals for the USD/CAD pair.

Failure to move back through the 200-day EMA leaves S1 (1.2970) and sub-1.2950 in play. However, a breakout from the 200-day EMA and a move through the 100-day EMA (1.3049) would bring the 50-day EMA (1.30789) and R1 (1.3083) into play.

The US Session

It is a quiet day ahead. US consumer inflation expectation numbers will draw interest late in the day. While the numbers will influence, there are no FOMC member speeches to consider, with the FOMC in its September blackout period (September 10-22).