FX.co ★ UFCworriers | USD/CAD

The USD/CAD currency pair continues to consolidate in price, trading below 1.4050, the highest since August 6th, on the back of conflicting fundamental signals. Oil prices rebound from their lowest in nearly two weeks, ending four days of losses. In addition, Bank of Canada (BoC) Governor Tiff Macklem takes a more hawkish tone, noting that two consecutive interest rate increases could be required if higher energy costs and trade worries spill over into broader inflation. On the flip side, it strengthens the Loonie as a commodity-based currency and weighs on the USD/CAD pair. At the same time, the US Dollar (USD) remains bullish, given the hawkish policy outlook of the US Federal Reserve (Fed), which implies at least one more interest rate increase this year. Moreover, oil-related inflation risks bolster expectations of further Fed tightening, while ongoing geopolitical tensions in the Middle East support USD/CAD. Moreover, the break above the 50% Fibonacci retracement level of the recent correction is another reason to be bullish, following the earlier breakout above the 100-day SMA. In addition, technical indicators confirm the positive short-term outlook and add upside pressure. More specifically, the Moving Average Convergence Divergence is trading above its signal line, with both above zero and trending upward. At the same time, the unchanged MACD histogram suggests that buyers remain in control, but the relatively high RSI(14) near 65 signals that it is getting overbought. Therefore, any subsequent advance could face strong resistance near the 61.8% Fibonacci retracement level of 1.4052. Higher up, the 78.6% retracement at 1.4138 caps the following bullish rally towards the recent high at 1.4248. On the downside, early support appears at the 100-day simple moving average (SMA) at 1.3953, with demand around 1.3992 and 1.3932 using Fibonacci extension theory. A further drop would see structural levels at 1.3857 and 1.3736, which will offer support for buyers.