Forex Analysis & Reviews: 17.12.2024 - USD/CAD. Analysis and...

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17.12.2024 03:12 PM

USD/CAD. Analysis and Forecast

For the fourth consecutive day, the USD/CAD pair continues to attract buyers, retesting its highest level since April 2020 around the 1.4280 zone.

This upward movement is driven by a combination of factors:

Political Shock in Canada: On Monday, Canada experienced a surprising political event when Chrystia Freeland, Deputy Prime Minister and Finance Minister, resigned due to disagreements with Prime Minister Justin Trudeau over economic strategy and the threat of US tariffs.
Bank of Canada Policy: The aggressive easing policy of the Bank of Canada and its dovish outlook regarding slower growth in the final quarter of this year further undermine the Canadian dollar.
US Dollar Strength: The renewed buying interest in the US dollar, supported by expectations of a less dovish Federal Reserve and rising US Treasury yields, has provided additional support to the pair.

Investors are now convinced that the Federal Reserve will adopt a more cautious stance on rate cuts, especially as Monday's US macroeconomic data revealed that much of the economy grew at its fastest pace in three years. Speculation that Donald Trump's policies may lead to higher inflation and increased government borrowing pushed the yield on 10-year US government bonds to its highest level since November 22. Additionally, ongoing geopolitical tensions and fears of a renewed trade war add support for the safe-haven US dollar.

Concerns about supply disruptions—driven by stricter sanctions against Iran and Russia—may help crude oil prices recover positive momentum. However, this is unlikely to provide significant support to the commodity-linked Canadian dollar in the near term.

Traders are advised to remain cautious and refrain from opening aggressive positions ahead of the release of Canada's latest consumer inflation data later today. Furthermore, monthly US retail sales data could provide short-term momentum at the start of the North American session. However, the primary focus will be on the outcome of the highly anticipated two-day FOMC meeting on monetary policy concluding on Wednesday. Investors will be looking for new signals regarding the path of Fed rate cuts, which will drive demand for the US dollar and determine the short-term trajectory of the USD/CAD pair.

Technical Outlook

On the technical front, the Relative Strength Index (RSI) on the daily chart has entered overbought territory, which calls for some caution for the bulls.

Upward Levels: Any further upward movement will likely face strong resistance near the April 2020 high, around the psychological level of 1.4300.
A sustained move above this level could push USD/CAD toward the next significant hurdle at 1.4350, with bulls aiming to reclaim the 1.4400 round figure for the first time since March 2020.

Downward Levels: On the other hand, any corrective pullback will find solid support near the 1.4200 round level.
- Further decline may present a buying opportunity around the 1.4155–1.4150 level, which could limit losses.
- A decisive break below this support would expose the 1.4100 level, which serves as a strong short-term base.
  - A breakdown below 1.4100 would trigger a prolonged bearish phase, paving the way for deeper losses.

In conclusion, while the pair remains bullish, caution is warranted near multi-year highs, and traders should monitor key data releases and the FOMC outcome closely.