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USDCAD Correction Trading Dynamics

10/25/2022 2:42 PM

After an unsuccessful attempt to break through the resistance level of 1.3830 last week, the USD/CAD pair is falling again with the target of 1.3600 against the backdrop of a technical correction in the US currency exchange rate, which was caused primarily by fixing long positions by investors before the announcement of the decision on the interest rate by the US Federal Reserve at a meeting on November 2. It is expected that the regulator will correct the value by 75 basis points, provoking a new impetus for the growth of the US currency.

An additional factor influencing the decline of the trading instrument was the negative data published yesterday in the US. The Manufacturing PMI fell to 49.9 points in October from 52.0 points a month earlier, while the forecast was at 51.0 points, and the Services PMI fell to 46.6 points from 49.3 points, lower than the expected 49.0 points.

At the same time, positive macroeconomic statistics from Canada contribute to the strengthening of the Canadian dollar. The Core Retail Sales Index rose 0.7% MoM in August after declining 2.5% a month earlier, exceeding the expected 0.4%, while Retail Sales increased 0.7% after -2.2% in July, which also turned out to be higher than the forecast at the level of 0.2%.

The next meeting of the Bank of Canada is scheduled for Wednesday, October 26. It is expected that the regulator will raise the interest rate by 0.75% to 4.00%. If the forecast comes true, then the Canadian dollar will receive additional support from buyers, and the USD/CAD pair will be able to test the levels of 1.3600 and 1.3500.

The long-term trend is upward. Now the USD/CAD pair is trading in a correction, the likely target of which is a test of the key trend support in the 1.3500 area. If this level is held by buyers, the growth will continue, and the October high at 1.3960 will be updated.

The medium-term trend changed to a downtrend last week. The target zone was broken (1.3747–1.3724) and now the target for sales is the target zone 2 (1.3523–1.3502). The key resistance of the trend is shifting to the levels of 1.3854–1.3831. If the quotes correct into this area, traders will be able to consider selling with the first target at last week's low at 1.3635.

Resistance levels: 1.3830, 1.3960, 1.4100. | Support levels: 1.3600, 1.3500, 1.3200.

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