Daily Price Outlook
During the European trading session, the USD/CAD pair slipped lower, hovering around the 1.4306 level and reaching a low of 1.4302.
The Canadian Dollar (CAD) found some support following the news that Canadian Prime Minister Justin Trudeau would announce his plans to step down, with the expectation that it would happen before an emergency meeting of Liberal legislators on Wednesday.
Meanwhile, the US Dollar (USD) managed to hold steady, partly due to President-elect Donald Trump's comments, in which he stated that his tariff policy would remain unchanged. This helped keep the USD/CAD pair higher for the time being.
Impact of Retaliatory Tariffs, Oil Prices, and US Economic Data on the USD/CAD Pair
On the CAD front, the Canadian media outlet “The Globe and Mail” reported that Canada’s federal government might soon release a list of American goods that would face retaliatory tariffs.
This move comes in response to the potential tariffs that incoming US President Donald Trump may impose on Canadian products. This has raised concerns about the trade relationship between the two countries.
At the same time, lower crude oil prices could weigh on the Canadian Dollar, as Canada is the largest oil exporter to the US. Oil prices have been falling, with West Texas Intermediate (WTI) oil trading around $72.90 per barrel, continuing a downward trend for the second day.
However, oil prices might find some support due to a decline in OPEC's oil production in December, particularly after the UAE's efforts to cut supply and stabilize global oil markets.
Looking ahead, traders are closely watching Canada’s Ivey Purchasing Managers Index (PMI) data, as well as the US ISM Services PMI, which will be released on Tuesday. Attention will also turn to the Federal Reserve's December meeting minutes on Wednesday.
Meanwhile, US business activity showed a strong increase in December, with the S&P Global US Services PMI reaching a 33-month high. President-elect Trump’s comments about his tariff policy could offer some support for the US Dollar in the coming days.
Therefore, the potential release of retaliatory tariffs by Canada and falling oil prices could pressure the Canadian Dollar, while strong US business activity and Trump's tariff policy comments may support the US Dollar. This could lead to further strength in the USD/CAD pair.
US Economic Growth and Trump’s Tariff Stance Support the US Dollar, Impacting USD/CAD Pair
On the US front, the S&P Global US Services PMI Business Activity Index rose for the second month in a row in December, reaching a 33-month high of 56.8, up from 56.1 in November.
This indicates that business activity in the services sector continued to grow at a strong pace. In addition, the S&P Global US Composite PMI Output Index also increased to 55.4 in December, up from 54.9 in November, showing a broad-based improvement in overall economic activity.
This rise in business activity marks the fastest expansion since April 2022, reflecting a healthy economic environment in the US.
The increase in both the services and composite PMI indexes signals that the US economy is continuing to recover and expand, which could support the US Dollar in the near term.
Furthermore, President-elect Donald Trump’s comments on his tariff policy added to the US Dollar's strength.
Trump confirmed that he would not scale back his tariff plan and dismissed a report suggesting that his team was considering limiting the tariffs to only cover specific critical imports.
His stance on tariffs could lead to continued uncertainty and potential market reactions, providing support for the US Dollar.
Therefore, the positive US economic data, along with President-elect Trump's firm stance on tariffs, could strengthen the US Dollar.
This may put upward pressure on the USD/CAD pair, as the US Dollar gains support from economic growth and tariff policy certainty.
USD/CAD – Technical Analysis
USD/CAD is trading at $1.43112, down 0.12% on the day, as bearish momentum dominates. The pair is consolidating below the pivot point at $1.43454 on the 4-hour chart, suggesting potential for further downside.
The Relative Strength Index (RSI) is at 39, indicating weak momentum and room for additional selling pressure. The 50-day Exponential Moving Average (EMA) at $1.43855 acts as a key resistance level, reinforcing the bearish sentiment.
Immediate support is observed at $1.42799, with additional levels at $1.42108 and $1.41342, aligning with prior price action and technical indicators.
A break below $1.42799 could accelerate the downside move, targeting $1.42108. On the upside, resistance stands at $1.44587, followed by $1.45428 and $1.46163.
To negate the bearish outlook, the pair would need to break and sustain above the pivot point and the 50 EMA at $1.43454 and $1.43855, respectively.
The technical structure indicates that sellers maintain control, with the descending price action below the pivot and EMA levels affirming bearish dominance.
Traders should monitor the $1.43454 pivot closely for a potential reversal or continuation signal, with key support and resistance levels dictating short-term moves.
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