- The US Dollar might struggle to extend gains above 1.3800 amid the positive market sentiment.
- The Canadian Dollar remains vulnerable following rate cuts by the Fed and the BoC.
- USD/CAD is correcting higher from a key support area above 1.3720.
The US Dollar is trading higher against the Canadian Dollar amid broad-based Greenback strength as investors digest recent rate cuts by the Fed and the BoC. The pair, however, might find resistance at 1.3800 as the moderate risk appetite weighs on the safe-haven USD.
The Federal Reserve cut rates by 25 basis points and hinted at further easing on Wednesday. Fed Chairman Powell, however, delivered a less dovish message, warning about the looming inflation and showing no rush to cut rates further, which provided some support to an ailing USD.
The Canadian Dollar, however, remains on the back foot as the Bank of Canada followed suit and cut rates to three-year lows at 2.5% amid concerns about a slowing economic growth and a deteriorating labour market.
Technical Analysis: The USD is on a bullish correction from 1.3725 lows
From a technical perspective, the Dollar reached the target of the broken wedge pattern at 1.3725 and is now correcting higher. Previous support at the 1,3790-1.3795 area is likely to act as resistance, with the positive market sentiment weighing on the USD’s recovery.
Further up, the next target is at the convergence of the reverse trendline with the September 12 high, at 1.3860, ahead of the September 11 high, at 1.3890.
To the downside, the 1.3720-1.3725 is a key support level (August 7, 29 lows). A clear break below here would trigger a Head and Shoulders pattern, increasing bearish pressure towards the July 28 low, at 1.3690, and the July 25 low, at 1.3635.
