- USD/CAD sold off ahead of Thanksgiving lull, driven by rising expectations for future Fed rate cuts.
- Despite short-term weakness, major support zones remain intact, and broader rate differentials continue to favor eventual U.S. dollar strength.
The US dollar plunged against the Canadian dollar during trading on Wednesday as most of North America is starting to focus on the idea of the Thanksgiving holiday on Thursday in the United States. This means that an entire trading session on Thursday will be all but non-existent. And therefore, you have to keep in mind that you can only read so much into this. Federal Reserve interest rate cuts are expected to come in the future, and expectations for interest rate cuts continuing have risen. This is part of why you're seeing the US dollar shrink. That being said, we are still looking at a scenario where the 1.40 level will be important as it is support and a large round psychologically significant figure.
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Key Support and Moving Averages
The 50-day EMA is sitting right there as well. So, a lot of people will be watching that also. If the market were to break down below there, then the 200-day EMA sits at the 1.3915 area and rises. I do believe it's probably only a matter of time before the buyers return, but in the short term, it looks like everybody is betting on the US dollar collapsing again. That's not a very realistic expectation. And at the first signs of trouble, the US dollar will start to pick up momentum again.
The next couple of days will be very difficult to gauge, mainly due to the idea that the Americans will be gone not only on Thursday, but probably Friday, as a lot of people will just simply not return to work on Friday. Therefore, I wouldn't read too much into the price action on both Thursday and Friday. And it's Monday, and perhaps even Tuesday, that we start to look at something along the lines of realistic momentum and volume. If we can break to the upside, meaning clearing the 1.4150 level, then I think the pair could go looking to the 1.43 level, but we'll just have to wait and see whether or not that actually ends up being the case. This is a pair that's choppy, but that's not really that out of sorts for this pair.
I think we are setting up for some type of range as we wait to see what the Federal Reserve does. But I still favor the upside; the interest rate differential favors the US dollar and probably will continue to do so for some time.
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