The USD/CAD outlook is bearish as the Canadian dollar rallies against a weak US dollar. The greenback fell as several US economic reports showed a softening economy, raising the likelihood that the Fed will cut rates in September.

On Wednesday, investors focused more on US data, including business activity and employment. Service sector business activity plunged to a 4-year low in June. The ISM reported that the PMI fell from 53.8 to 48.8. Weakness in the economy is a relief for the Fed and will likely give policymakers the confidence to shift to a more dovish stance.

Meanwhile, employment data showed some cracks in the labor market. Private employment in the US fell in June, surprising economists forecasting an increase. Meanwhile, unemployment claims edged higher, indicating a possible rise in the unemployment rate. A decline in labor market demand is the one thing that will put pressure on the Fed to start cutting rates. Therefore, investors will pay attention to the nonfarm payrolls report, which will give a better picture of the state of the labor market.

Meanwhile, data from Canada revealed that the country’s trade deficit in May was bigger than expected at C$1.93 billion. This beat economists’ forecasts of a C$1.20 billion deficit. Moreover, it was the third month when exports fell more than imports, indicating a decline in economic activity. 

However, rate-cut bets remained low since the last inflation report revealed an acceleration in May. The likelihood of a cut in July fell to 45%.

USD/CAD key events today

Investors are not expecting any major reports from the US or Canada. Therefore, the pair might consolidate ahead of the US nonfarm payrolls report.

USD/CAD technical outlook: Bears charge for the channel support

(Click on image to enlarge)

USD/CAD 4-hour chart

On the technical side, the USD/CAD price has broken below the 1.3640 key support level after a sharp move lower. The bearish bias has strengthened with the price well below the 30-SMA and the RSI near the oversold region. After a false breakout, bears returned with enough momentum to head for the channel support. 

At the same time, the price is approaching the 1.3600 support. Therefore, the decline might pause and reverse to retest the channel resistance. However, the decline could continue past the support level if bears are still strong.

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