The USD/CAD currency pair is currently consolidating near 1.3440, experiencing a sideways trend following a pronounced decline from the psychological resistance level of 1.3500 during the early European session. The Loonie faces headwinds as demand for safe-haven assets weakens, despite optimism that the Federal Reserve (Fed) will maintain interest rates until May.
In the Asian session, S&P500 futures recorded notable gains, indicating an improvement in market participants’ risk appetite. The US Dollar Index (DXY), however, struggles to find solid ground after a dip to around 103.10, while 10-year US Treasury yields have edged down to approximately 4.12%.
Oil prices have slightly dipped below $73.00, influenced by economic challenges. Global oil demand is expected to remain subdued, with central banks contemplating extending restrictive interest rates in the face of persistent price pressures. Additionally, concerns about a vulnerable post-pandemic recovery in China continue to weigh on oil demand.
It’s crucial to recognize that Canada, as a major oil exporter to the United States, benefits from higher oil prices, supporting the Canadian Dollar.
The USD/CAD pair has descended towards the lower segment of the Rising Channel chart pattern observed on a two-hour scale. A potential sell-off looms if the pair breaches the immediate support level at 1.3410. Furthermore, the asset remains positioned below the 50-period Exponential Moving Average (EMA), currently situated around 1.3464.
The 14-period Relative Strength Index (RSI) has dipped into the bearish range of 20.00-40.000, signaling the initiation of a downside momentum.
Further downside risks emerge if the pair falls below the January 9 high of 1.3415, potentially exposing it to the January 3 high at 1.3372 and the January 4 low at 1.3317.
Conversely, a substantial recovery above the January 18 low at 1.3480 could pave the way for further upside, targeting the January 18 high at 1.3528, followed by the December 12, 2023 low at 1.3545.