USDCAD Weekly Analysis 25/01/2025

Fundamental Analysis
The Canadian Dollar (CAD) edged higher against the US Dollar (USD) on Friday, benefiting from a weakening Greenback rather than its own strength. The US Dollar Index (DXY) softened across the board, reflecting diminished demand for the USD rather than a fundamental shift in the CAD’s appeal. This modest CAD rally remains confined within a consolidation pattern that began in mid-December, signaling limited bullish momentum.

Looking ahead, the Bank of Canada (BoC) is expected to announce a 25-basis-point rate cut next week, further widening the interest rate differential with the Federal Reserve (Fed), which is expected to maintain its current policy stance through the first half of the year. This divergence limits the upside potential for the CAD, as markets are unlikely to sustain buying pressure on the Loonie amidst easing domestic monetary policy.

In the near term, USD/CAD movement will likely hinge on broader USD trends, as any further weakness in the DXY could lend temporary support to the CAD. However, the anticipated rate cut by the BoC underscores a cautious outlook for the Loonie.

2. Key Resistance Levels

• 1.4412 (H4 Liquidity):

  • Significant liquidity level where price may face selling pressure.

• 1.4455 (H4 Liquidity):

  • Another liquidity zone that could act as a resistance before bearish continuation.

• 1.4460 (Weekly Open):

  • Key resistance aligned with the weekly open; a potential zone for initiating short positions.

3. Key Support Levels and Sell Targets

• 1.4260 (H4 Liquidity):

  • Primary bearish target where price could consolidate or reverse.

• 1.4244 (Weekly FVG):

  • An unfilled gap that may act as a magnet for price, offering a short-term target.

• 1.4177 (Monthly FVG):

  • A deeper support level where price may encounter significant buying interest.

4. Trading Plan

• Bearish Bias:

  • Look for price to test resistance levels at 1.4412, 1.4455, or 1.4460 before rejecting lower.

  • Target 1.4260 as the primary support, with extended targets at 1.4244.

• Bullish Setup:

  • Monitor price action at 1.4260, 1.4244, and 1.4177 for signs of reversal, such as bullish engulfing patterns, order block formations, or other confirmation signals.

  • Long positions could be considered at these levels, aiming for a bounce back toward the 1.4412 resistance zone.

5. Summary

• USD/CAD is poised for further bearish continuation within its established range, with resistance at 1.4412–1.4460 and downside targets at 1.4260 and 1.4244. Traders should remain cautious around support zones, as these areas may present reversal opportunities for a bullish recovery.

• Use your strict money management rules to manage risks effectively.

Technical analysis

1. Overview of Momentum and Market Structure

• Current Momentum: Bearish.

• Previous Week's Performance: Continued bearish movement, respecting the downward trend.

• Range: 1.4516–1.4260.

• Expectations: A bearish continuation within the prior week’s range, with price likely targeting lower liquidity levels.