• The USD/CAD forecast shows the dollar in a vulnerable position ahead of the Fed meeting.
• Market participants are almost fully pricing a 25-bps Fed rate cut.
• The BoC is also facing pressure to cut rates this week.

The USD/CAD forecast shows the dollar in a vulnerable position as markets prepare for a likely Fed rate cut this week. Meanwhile, the Canadian dollar could also face downward pressure from an expected rate cut during the Bank of Canada policy meeting.

Market participants are almost fully pricing a 25-bps Fed rate cut on Wednesday. If it comes as expected, it will have little impact on the dollar. Meanwhile, a surprise move or an unexpected tone could increase volatility

“We are calling for a 25-basis-point cut from the FOMC this week, which is more than fully priced,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“To have an impact on currencies, Powell will have to out-dove the market by giving quite explicit hints about follow-up rate cuts. And if the FOMC does deliver an outsized 50-basis-point cut, that could also push the dollar down quite significantly, unless he suggests that there is a limited chance of follow-up cuts,” said Kong.

On the other hand, the BoC is also facing pressure to cut rates this week amid labor market weakness. However, the central bank has already done a lot in terms of easing. Therefore, traders will focus more on the Fed meeting.
 

USD/CAD key events today

Market participants do not expect any key economic releases today. Therefore, the pair could consolidate.
 

USD/CAD technical forecast: Bears reemerge near 1.3875 resistance
 

(Click on image to enlarge)

USD/CAD 4-hour chart
 

On the technical side, the USD/CAD price has paused at a solid support zone after a sharp decline from the 1.3875 key level. The drop came after the price made a bearish engulfing candlestick pattern. Meanwhile, it paused after meeting the 30-SMA and the channel support line.

USD/CAD has been trading in a bullish channel with clear support and resistance lines. At the same time, it has stayed above the 30-SMA, a sign that bulls have a strong lead. However, bears have shown strength by making an engulfing pattern. If this plays out, they could break below the SMA and the channel support.

A channel breakout would allow bears to take charge and target the 1.3750 support level. On the other hand, if the channel support remains firm, bulls will return to push the price above the 1.3875 resistance level. Such a move would allow the bullish trend to continue.

More By This Author: