USD/CAD to Target 1.3250 on a Positive ISM PMI and Fed Fear

It is a quiet day ahead for the USD/CAD. There are no stats from Canada to provide the Loonie with direction today. With the markets reopening after the Labor Day holiday, the focus will be on crude oil prices ahead of Wednesday’s Bank of Canada monetary policy decision.

Russian supplies to Europe and ongoing negotiations with Iran on a nuclear agreement remain focal points following updates from the OPEC meeting on Monday.

Early in the US session, US service sector PMI numbers will provide the USD/CAD pair with direction.

USD/CAD Price Action

At the time of writing, the USD/CAD was down by 0.08% to 1.31270.

A choppy morning saw the USD/CAD slide from an early high of 1.31437 to an early low of 1.30962. The USD/CAD pair fell through the First Major Support Level (S1) at 1.3117 and the Second Major Support Level (S2) at 1.3097 before bouncing back.

Technical Indicators

The USD/CAD will need to move through the 1.3145 pivots to target the First Major Resistance Level (R1) at 1.3166 and the Monday high of 1.31736.

With no economic indicators from Canada to provide direction, the USD/CAD pair will be in the hands of US services PMI numbers and crude oil prices.

In the event of an extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3194 and resistance at $1.32. The Third Major Resistance Level (R3) sits at 1.3243.

Failure to move through the pivot would give the bears another run at the First Major Support Level (S1) at 1.3117. The Non-Manufacturing PMI will need to disappoint to deliver another sell-off.

Barring a jump in crude oil prices and weak PMIs, the USD/CAD should steer clear of sub-1.3050. The Second Major Support Level (S2) at 1.3097 and the morning low of 1.30962 should limit the downside.

The Third Major Support Level (S3) sits at 1.3048.

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 1.30852.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals for the USD/CAD pair.

Last Tuesday’s break out from the 50-day EMA supports a return to 1.33 for the first time since November 2020. However, the USD/CAD needs to avoid a fall through the 50-day EMA (130852) to support the current upswing.

A USD/CAD fall through S1 (1.3117) would bring S2 (1.3097) and the 50-day EMA (1.30852) back into play. The 200-day EMA sits at 1.29722.

The US Session

It is a busy day ahead, with the US services sector in the spotlight. The market’s preferred ISM Non-Manufacturing PMI will be the market’s area of focus. While the headline figure will be the key, employment, inflation, and new business components will also influence.

Better-than-expected numbers would skew interest rate hike bets in favor of a 75-basis point. Positive stats should also nudge the Dollar Spot Index (DXY) to 110. Economists have forecast the headline PMI to fall from 56.7 to 55.5.

While the markets had eased bets of a 75-basis point Fed rate hike following last Friday’s labor market numbers, FOMC member chatter supports more front-loading.