The USD/CAD pair was falling slowly last week, creating four negative candles in five days, starting on Thursday. The U.S. dollar is under pressure, while the Canadian dollar is expecting Bank of Canada’s interest rate decision. Currently, the overnight rate stands at 0.75% after they raised it in July. The majority of investors are expecting the central bank to keep it unchanged, however, some of them will not be surprised if BoC tightens its monetary policy for the second consecutive time by 25 basis points.
The domestic economy is expanding at a continuously rising pace and reached an impressive annual growth of 3.7% in the second quarter of the year. Even though the inflation is low - around 1% - compared to the central bank’s target range between 1% and 3% with midpoint target 2%, the monetary policy statement is likely to be positive for the Loonie. If policymakers stand back from positive comments, which are widely expected, we may surprisingly see the USD/CAD rebounding strongly upwards.
USD/CAD – Technical Outlook
The U.S. dollar had an aggressive bearish run during last week against the Canadian dollar following the bounce off the 1.2665 resistance level. The USD/CAD pair dropped almost 9% over the last four months and managed to slip lower from our recommended target at 1.2415 (see previous technical analysis: USD/CAD Faced a Negative Movement – The Strongest Decline in 1-Month).
On a monthly basis, the price hit the 50-SMA, which is acting as a strong support level. Additionally, on a medium-term timeframe, the pair fell beneath the 200-SMA, as well as below the 50-day SMA. If the price rebounds on the 50-SMA, it will run until the 1.2580 price level. On the other side, in case of a penetration below 1.2340 will open the way for 1.2115. The RSI indicator is flattening below the 50 level, while the MACD oscillator is falling below both trigger and zero lines.
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