USD/CAD take a second reversal attempt due to global central bank policy tightening

23 June 2023 175
USD/CAD take a second reversal attempt due to global central bank policy tightening

The latest forecast for the USD/CAD currency pair projected a price reversal after a long decline. The expectations were not justified, but today the Canadian dollar is again signaling a reversal. The fundamental background has improved for the U.S. dollar as the world's central banks are once again switching to tightening monetary policy.

As written earlier, the Canadian dollar depends on oil prices, as the country is one of the largest oil producers. In recent weeks, the Canadian currency has strengthened, despite the local lows in oil prices. It temporarily ignores their dynamics and pays more attention to the central banks' actions. Therefore, even if oil rises, the Canadian dollar might resume weakening.

This week there have been a lot of hawkish signals from central banks.

The U.K. rate hike was higher than predicted. It followed the data showing an unexpected rise in the country’s inflation. The Bank of England hinted at further monetary policy tightening this year.

The Consumer Price Index (CPI) rose to 8.7% in May, the Office for National Statistics reported on Wednesday. Core inflation, excluding food and energy, accelerated to 7.1%. Economists had expected the CPI to reach 8.4%. Core inflation was forecast to remain unchanged at 6.8%.

Fed Chair Jerome Powell also reiterated that the regulator might raise rates at least two more times this year. As he said, U.S. inflation continues to be twice as high as the Fed's target range. There were no signals for policy easing.

According to the technical analysis, the USD/CAD currency pair forms a bullish pattern on the daily timeframe, which indicates the U.S. dollar's further strength. The prices broke through the lower limit of the wide flat range. However, today there is a strong bullish momentum and an attempt to return to consolidation. Thus, there is a chance to open long positions in USD/CAD again.

The growth target will be the resistance level, which corresponds to the price of 1.330 and previously was the support. A stop-loss will be set at updating the current lows at 1.314.

The USDCAD currency pair is likely to rise:

Take profit – 1.330

Stop-loss – 1.314

This content is for informational purposes only and is not intended to be investing advice.

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