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USD/CAD Faces Resistance Above 1.35; CAD Gains Limited Amid Rising Economic Concerns

The CAD made notable gains against the USD last week, but the road to recovery remains uncertain. According to the latest analysis from Scotiabank, there appears to be a historical resistance for the USD/CAD pair breaching above the 1.35 mark, as its ventures beyond this level have typically been restrained in both magnitude and time span.

CAD Shorts Piling Up

The CAD’s recent appreciation halted the USD’s bullish momentum in the 1.36/1.37 range. This movement mirrors the market behavior seen during spring, suggesting a potential recurring trend. “Forays of USD/CAD above 1.35 historically tend to be limited in scope and duration,” Scotiabank analysts mentioned.

CAD’s gains have remained modest, and upcoming economic events pose a substantial risk, making investors wary of CAD’s prolonged recovery. Nevertheless, CAD is perceived as somewhat undervalued and potentially oversold according to chart analyses. Friday’s CFTC data highlighted an increasing trend of net CAD short positioning, coinciding with CAD’s initial signs of stabilization, reminiscent of the pattern observed in March/April. An eventual fall below the 1.35 threshold might increase pressure on the newly established short CAD positions.

Technical Outlook: USD/CAD

Scotiabank’s economic team highlighted that short-term technical trends appear favorable for the CAD. Since reaching and retracting from the 1.37 mark, the USD has adopted a more defensive trading stance, with a discernible bearish momentum taking shape on short-term charts. However, the support at the 1.3495/1.3500 zone currently obstructs any additional gains for CAD.

“A dip below the 1.3495 point could propel CAD to the lower 1.34 bracket and may even challenge the stronger USD support present in the high 1.33s,” Scotiabank analysts postulated.

Economic Indicators & DXY Analysis

Recent data released depicted a dip in Canada’s Raw Material Price Index from 3.5% to 3% in August, while the Industrial Product Price showcased a growth of 1.3% for the same month, compared to the previous 0.4%. These mixed figures paint a nuanced picture of Canada’s economic standing.

On the global front, the USD Index (DXY) experienced a slight selling pressure at the week’s start, but its trajectory remains largely bullish. Following marginal losses last Friday, DXY revisited the 105.20/15 band early this week. Should the index surpass its monthly high of 105.43 set on September 14, it’s poised to challenge its 2023 peak of 105.88 established on March 8, drawing nearer to the crucial 106.00 mark.

While the index continues to stay above the pivotal 200-day SMA, currently at 103.02, its overall outlook is projected to stay positive.

In summation, with the CAD’s resistance and the DXY’s potential bullish path, traders and investors alike should brace for intriguing market dynamics in the forthcoming weeks.

CURRENT TREND: Bearish for USD (Bullish for CAD)
👉ENTRY PRICE: 1.3495
✅TAKE PROFIT: 1.3400
❌STOP LOSS: 1.3525

ANALYSIS: The CAD has recently shown appreciation against the USD, and there’s a historical resistance for the USD/CAD pair breaching above the 1.35 mark. Short-term technical trends also favor the CAD, and the 1.3495/1.3500 zone is a significant support. Breaking this support could lead to a quick decline towards the 1.34 area. This, combined with recent economic data, suggests a potential short position.

TRADE PLAN: Enter a short position at the 1.3495 mark. Monitor the trade and adjust the stop loss to break-even once the price moves favorably by around 50% of the expected range. Watch out for any significant news events or economic data releases which might impact the USD/CAD pair.

FINAL THOUGHTS: This trade idea is based on both technical and fundamental analysis. While CAD shows signs of strength, it’s essential to monitor the trade closely due to potential volatility from external economic events or unexpected news. Always trade responsibly and never risk more than you can afford to lose.