The main driver of the decline was a sharp shift in sentiment and diverging expectations for policy actions in the United States and Canada.

→ Canada: Friday’s employment data came in far stronger than forecast. As a result, traders sharply reduced the likelihood of a Bank of Canada rate cut at the next meeting, judging the economy resilient enough to pause its easing cycle.

→ United States: Markets are pricing in a high probability of a Federal Reserve rate cut at tomorrow’s meeting (22:00 GMT+3).

This contrast pushed USD/CAD to a 2.5-month low. However, the chart shows that the bulls may still have some grounds for optimism.

USD/CAD Technical Analysis

On 1 December we analysed the USD/CAD chart and:
→ drew an ascending channel (shown in blue) and noted several bearish signals;
→ suggested that the 1.4000 level would act as resistance in the near term, with bears likely to attempt to resume the downward move in USD/CAD.

Indeed, as the arrow indicates, the bears managed to restart the downtrend, which led to:
→ a breakout below the lower boundary of the channel;
→ the need to map out a descending trajectory (shown in red), with its median potentially acting as resistance going forward.

In this context, it is reasonable to assume that the bulls have some cause for hope in the short term, as:
→ the price is rebounding from the lower boundary of the red channel, indicating demand;
→ the RSI has risen from extreme oversold levels;
→ the candle highlighted by the second arrow looks bullish – it closed near the top of its range, forming a long lower shadow.

Given the above, traders should not rule out a corrective recovery in USD/CAD until the Federal Reserve releases its decision, which could significantly impact financial markets.

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