- USD/CAD holds quiet ahead of the FOMC decision, trading below the 200-day EMA while testing support from a prior downtrend line.
- Market direction hinges on the Fed’s tone, with key levels between 1.35 and 1.4250 watched for potential movement.
The US dollar is pretty quiet during the trading session on Tuesday against the Canadian dollar, which makes quite a bit of sense considering that we have the FOMC interest rate decision coming out on Wednesday. And as a result of that, it makes sense that a lot of people are not willing to put a ton of money into the market.
The US dollar has dropped below the 200-day EMA, showing signs of negativity, but we are trying to find support at a previous downtrend line that should start to show signs of support based on market memory. We will have to wait and see what happens over the next 24 hours or so to get a read on where this pair may go longer term. After all, if the Federal Reserve shocks the market, it will cause chaos. We are anticipating a 25 basis point interest rate cut. And if we get that, I don’t think it in and of itself changes much. But what we do have is the press conference afterwards that could really rock the markets.
Fed Tone and Market Reaction
If the Federal Reserve starts to sound like it’s somewhat dovish, that will put more pressure on the dollar. Alternatively, if it is more or less what they consider to be a hawkish cut, then the US dollar should rally. Canada has a world of its own problems, but employment came out much hotter than anticipated last month. But I’d be the first to point out that Statistics Canada does a horrible job of putting numbers together that are reliable. And Canadian employment numbers missing is a common thing. It’s not necessarily that shocking.
So, we’ll have to see whether or not there’s any follow-through. If we were to break down from here, the 1.37 level should be support. Anything below there opens up 1.35 as a target. If we turn around and recapture the 200-day EMA, we’ll probably see a little bit of resistance at the 1.40 level, and then go looking to the 1.4150 level, followed by 1.4250, which was an area back in April that had a massive amount of supply. So, keep in mind, this is typically a very choppy pair, and therefore any longer-term moves probably take their time getting there.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
