The USD/CAD Pair Is Poised for an Upside Breakout as Bulls Gain Momentum
The USD/CAD pair is showing signs of an impending breakout to the upside as bullish momentum continues to build. With spot prices remaining within striking distance of their highest level since early June, it seems that the recent upward trajectory witnessed since the beginning of this month is set to continue.
One factor supporting this upward movement is the positive traction gained by crude oil prices for the third consecutive day. This is bolstering the commodity-linked Canadian dollar, also known as the Loonie. Additionally, the subdued price action of the US dollar (USD) is acting as a headwind for the USD/CAD pair.
However, elevated US Treasury bond yields, fueled by rising bets for another 25 basis points lift-off by the Federal Reserve (Fed) in 2023, are helping the USD maintain its strength. Moreover, the looming recession fears are supporting the positive outlook for the USD as a safe-haven currency.
From a technical perspective, the Relative Strength Index (RSI) on the daily chart is hovering above the 70 mark, indicating slightly overbought conditions. This is causing some hesitation among buyers, but last week’s breakout above the crucial 200-day Simple Moving Average (SMA) resistance near the 1.3450 level provided fresh impetus for bullish traders. Furthermore, the subsequent move above the psychological level of 1.3500 confirms the positive outlook, suggesting that the path of least resistance for spot prices is upward.
However, it would be wise to wait for some near-term consolidation or a modest pullback before establishing further long positions. Regardless, the USD/CAD pair appears poised to surpass Friday’s swing high around the 1.3575 region and potentially reclaim the 1.3600 mark, which hasn’t been seen since May. If the positive momentum continues, the next significant barrier lies in the 1.3655-1.3660 supply zone.
On the other hand, any meaningful corrective decline is likely to attract fresh buyers near the 1.3500 level, limiting the downside for the USD/CAD pair around the 1.3450 area, where the 200-day SMA acts as a strong support. However, if this support is decisively broken, it may trigger aggressive selling and expose the 1.3400 round figure, followed by a test of the 1.3370 support zone.
In conclusion, the USD/CAD pair is showing signs of an upcoming breakout to the upside, propelled by bullish momentum. While technical indicators suggest a slightly overbought condition, the breakout through key resistance levels and positive market conditions support further upward movement. Traders should exercise caution and wait for consolidation or pullback before considering fresh long positions.
