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  • The USD/CAD price shows mild signs of recovery as the US dollar picks up momentum.
  • The COVID-led optimism is fading, giving room to the dollar bulls.
  • Fed’s doubted hawkishness could limit the upside potential.

The USD/CAD forecast is mildly positive on Wednesday as the pair finds buying traction in a silent market. A slight upward movement is seen in the Loonie around 1.3530 as bulls and bears clashed during the first positive day for the pair.

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Recent drops in oil prices and the recovery of the US dollar could coincide with a price recovery. USD/CAD traders are held back by holidays, a light calendar, and fewer macroeconomic events.

As the US Dollar Index (DXY) struggles to defend a recent rise near 104.25, it bounced off a weekly low amid weak US Treasury yields. The US dollar index against the six major currencies has also explained the recent mixed US data and fears over the Fed’s next move. DXY bulls are encouraged by a fading optimism about China’s Covid situation and easing fears about a US recession.

The San Francisco Federal Reserve Bank’s Economic Research Division recently ruled out the possibility of US economic growth slowing within two quarters. However, October’s S&P/Case-Shiller home price index plummeted 8.6% YoY versus expectations for 9.7% and 10.4%, respectively. However, November’s strong US trade balance improved to -$83.3 billion from -$98.8 billion.

Following the Federal Reserve’s last monetary policy meeting, mixed inflation and growth data last week cast doubt on the Fed’s hawkish stance.

In contrast, China announced a series of measures to quickly reopen national and international borders in response to COVID-19 concerns. These moves, however, have raised concerns in the US, which is examining risk appetite. From Jan. 8, 2023, China will allow citizens to apply for regular passports for tourists and outbound travelers without quarantine requirements. COVID-19 measures could be introduced for Chinese travelers to the United States amid concerns about Beijing’s “lack of transparency.”

In this context, US Treasury yields remain firm, while equity futures are rising modestly, and WTI crude oil has retreated further from a three-week high and is down no later than $0.22 for the day.

Given the market activity, a light calendar, and the absence of significant macroeconomic indicators, USD/CAD is likely to experience low volatility. Considering the market consensus expectation of 0.6% vs. -4.6% in previous readings, it should be highlighted that November’s US Pending Home Sales report will adorn the calendar.

USD/CAD price technical forecast: Bears paused by 200-SMA

USD/CAD forecast

The USD/CAD pair finds support on the 200-period SMA on the 4-hour chart just below the 1.3500 level. However, the attempt to find buyers remains elusive as the price is barred by a strong orderblock zone around the 1.3540 area.

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The upside correction may stall around 1.3550 and resume the downtrend. However, the sellers can dominate again below the 1.3500 area and may look for 1.3415 as their next target.

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