USD/CAD Climbs to a Six-Week High

On Friday, USD/CAD rose above the 1.3920 level, marking its highest reading since 5 December.

The Canadian dollar is under pressure due to a combination of factors, including:

→ Market assessment of a trade agreement with China. The deal предусматривает sharp cuts in tariffs on electric vehicles and rapeseed. Both countries have also pledged to remove trade barriers and establish new strategic ties. This agreement has prompted a negative reaction from the United States.

→ Weakness in Canada’s labour market. The latest unemployment data for Canada were very soft, showing a rise to 6.8% in December.

→ Upcoming key events. Later today (at 16:30), Canada’s CPI data will be released, followed next week by the Bank of Canada’s interest rate decision.

That said, after USD/CAD has gained around 1.27% since the start of the year, bullish momentum may be fading — and there are signs of this on the chart:

→ First, note the 1.3939 level: in December it acted as support, but was later broken in an aggressive manner. Its proximity may now be providing resistance for the current market.

→ Second, analysing Friday’s price action, we can see that the impulsive rally above local resistance at 1.3920 ended in a bull failure. As indicated by the arrow, the entire advance was subsequently erased.

These observations suggest that bears may be ready to seize the initiative and attempt a break below the local ascending channel (shown in blue). Whether USD/CAD follows this scenario will largely depend on today’s inflation data and on comments from officials.