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USD/CAD Faces Strong Resistance:Technical / Fundamental Analysis

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USD/CAD Faces Strong Resistance:Technical / Fundamental Analysis

The USD/CAD pair has encountered a pivotal juncture, rejecting the 78.6% Fibonacci Level around 1.3530 during the early European hours on Friday. This article explores the technical and fundamental factors influencing this rejection and delves into the broader economic landscape affecting the US Dollar (USD) and the Canadian Dollar (CAD).

Technical Analysis:

The rejection at the 78.6% Fibonacci Level, situated at 1.3530, signals a noteworthy development. The price is met with strong resistance, marked by the confluence of the Fibonacci level and a bearish dynamic trendline. Additionally, the Relative Strength Index (RSI) has dropped from overbought conditions, hinting at a potential downward move aligning with the prevailing trend.

Market Overview:

Simultaneously, the US Dollar Index (DXY) is trading around 103.40, reflecting the broader strength of the USD. Notably, the 2-year and 10-year yields on US bond coupons stand at 4.35% and 4.15%, respectively. Despite these positive indicators, the rejection at the critical Fibonacci level suggests a potential shift in momentum for the USD/CAD pair.

Fundamental Influences:

Monthly US Housing Starts exceeded expectations in December, reaching 1.46 million against the anticipated 1.426 million. Building Permits (MoM) also reported growth, surpassing the market consensus at 1.495 million. Additionally, Initial Jobless Claims for the week ending on January 12 decreased to 187K from the previous reading of 203K, showcasing resilience in the US labor market.

On the flip side, the Canadian Dollar (CAD) has found support from elevated crude oil prices, a critical factor given Canada's status as the largest oil exporter to the United States. West Texas Intermediate (WTI) hovers around $73.90 per barrel, contributing to CAD strength as Crude Oil stockpiles decline.

Conclusion:

The rejection at the 78.6% Fibonacci Level for USD/CAD, coupled with the confluence of technical resistance and bearish signals, suggests a potential shift in the pair's momentum. While positive economic indicators support the USD, the Canadian Dollar gains strength from robust crude oil prices. Traders should monitor these technical and fundamental dynamics closely, as they navigate the complexities of the forex market. As always, prudent risk management and a keen awareness of market conditions are crucial in making informed trading decisions.