USD/CAD Forecast: Pair Pulls Back as Traders Brace for US GDP and PCE
Thursday during Asian hours, the USD/CAD pair pulled back to $1.3890, ending a 3 day winning streak. The pullback came as the US Dollar...
Quick overview
- The USD/CAD pair pulled back to $1.3890, ending a three-day winning streak as the US Dollar corrected lower.
- Traders are awaiting critical US economic data, including the Q2 GDP reading and PCE Price Index, to influence market direction.
- Fed officials are divided on policy, with some advocating for more rate cuts while others urge caution, adding volatility to the dollar.
- The US dollar is testing resistance near $1.3900, with technical indicators suggesting a potential near-term pullback.
Thursday during Asian hours, the USD/CAD pair pulled back to $1.3890, ending a 3 day winning streak. The pullback came as the US Dollar corrected lower after gaining over 0.5% the previous day. Traders are looking to the final US Q2 GDP reading today and Friday’s PCE Price Index (the Fed’s preferred inflation gauge) to set the narrative for the week.
The pullback is due to caution ahead of critical data that will guide the Fed’s next move. While the dollar had gained after Fed Chair Powell warned against cutting rates too aggressively, profit taking has brought the correction. According to the CME FedWatch Tool, futures now price in a 92% chance of a rate cut in October, up from 87% last week, very dovish.
Diverging Fed and BoC Views
Fed officials are split on policy. San Francisco Fed President Mary Daly said more cuts may be needed to stabilize prices and jobs, while Chicago Fed President Austan Goolsbee urged caution against too much easing. Political noise has also entered the picture: Donald Trump’s nominee to the Fed, Stephen Miran, has already caused debate over the central bank’s policy path, adding volatility to the dollar.
Meanwhile, Bank of Canada Governor Tiff Macklem said this week the BoC must take a “more independent course” from the Fed, emphasizing domestic priorities in the face of global trade and financial risks. While Canada’s ties to the US limit how far this divergence can go, it provides near term support to the Canadian dollar.
USD/CAD Technical: Bulls Eye Channel Resistance
The US dollar is testing the upper channel near $1.3900 after a series of higher lows since mid-September. Momentum picked up after a clean break above both the 50-SMA ($1.3835) and 100-SMA ($1.3817), a bullish crossover that has turned short term sentiment up.
Candlesticks show some fatigue. A series of strong bullish candles (3 white soldiers) has given way to smaller bodies near resistance, indicating hesitation. The RSI at 72 is overbought, so we may see a near term pullback. Key levels are $1.3928, $1.3948, $1.3969 and $1.3864. Deeper support at $1.3830-1.3815.
Trade Setup: Short term bulls can look to buy a breakout above $1.3930 targeting $1.3965 with stops below $1.3860. Conservative traders may wait for a dip to $1.3830-1.3850 before re-entering. Bears can look for a bearish engulfing candle or shooting star at the channel top before fading the rally.
For now the bigger picture is constructive but momentum is stretched so the next candle will decide if USD/CAD goes higher or consolidates.
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