The USD/CAD outlook shows easing fears of a trade war between the US and China which has boosted risk sentiment, weighing on the dollar. Meanwhile, the Canadian dollar held steady as market participants looked forward to Canada’s retail sales report. 

The dollar fell on Friday after Trump said he would soon meet China’s president. This increased the likelihood that the two countries would reach an agreement to end tariffs and avoid a trade war. Trump imposed a 10% tariff on Chinese imports, which led to an immediate response. China also imposed duties on some US goods, raising fears of a trade war between the two largest economies. As a result, risk sentiment soured, and the dollar soared on safe-haven demand.

However, it has become clearer that Trump is more willing to negotiate better trade deals. This means that the tariffs are mostly just threats to push countries to comply with his conditions. As a result, currencies like the Canadian dollar have rebounded. 

The loonie has also recovered due to upbeat inflation figures from Canada earlier in the week, which eased pressure on the BoC to cut rates. Market participants are now expecting retail sales data for more clues on the outlook for rate cuts.

USD/CAD key events today

• Canada core retail sales m/m
• Canada retail sales m/m
• US flash manufacturing PMI
• US flash services PMI

USD/CAD technical outlook: Bullish takeover fails, bears retest 1.4150

(Click on image to enlarge)

USD/CAD 4-hour chart

On the technical side, the USD/CAD price trades below the 30-SMA with the RSI under 50, indicating a bearish bias. However, bulls recently showed strength when the price broke above the 30-SMA. At the same time, the RSI broke above 50, suggesting strong bullish momentum. This is a sign that bulls have started challenging the downtrend. 

Since bears took control, the price has stayed below the 30-SMA and the RSI below 50. At the same time, the price has made lower highs and lows. Therefore, the downtrend will continue if the price breaks below the 1.4150 support level and makes a lower low. 

However, if the support holds firm, bulls might resurface to challenge the downtrend by breaking above the SMA. Still, to confirm a reversal, the price must start making higher highs and lows, meaning a break above the 1.4300 resistance.

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