USD/CAD reclaims 1.2400 amid risk-on market sentiment, ahead of the Fed

• USD/CAD bounces off 1.2350 daily lows, trimming Monday’s losses.
• Risk-on market sentiment in equity markets, in the FX market, safe-haven assets have the upper hand.
• USD/CAD bullish above 1.2528, otherwise sellers are in control.

USD/CAD climbs during the New York session, up 0.30%, trading at 1.2406 at the time of writing. As the North American session winds down, the market sentiment is upbeat, with the S&P 500 and the Dow Jones Industrial printing new all-time highs, while the Nasdaq Composite finished in the green.

Earlier in the Asian session, the USD/CAD pair was changing hands around the 1.2350 area, Tuesday’s low. But once European traders got to their desks, the pair broke to the upside, printing a daily high at 1.2420, retreating later, settling at current levels. 

That said, FX markets dynamics were more risk-averse in contrast to equity markets. Safe-haven currencies like the greenback and the Japanese yen got a boost as investors got ready for the Federal Reserve meeting.

Investors expect a bond taper announcement by the US central bank, as telegraphed by the parade of Fed speakers in the last month. Also, Fed Chairman Jerome Powell, in a Bank of International Settlements virtual event, said that “I do think its time to taper.” Furthermore, Powell added: “I don’t think it is time to raise rates,” pushing back the expectations of a hike rate.

In the outcome of a hawkish Federal Reserve, an upward move in the USD/CAD pair would be capped because the Bank of Canada (BoC) is one step ahead of the Fed, as the BoC ended its QE program, as it gets ready for hiking rates.

USD/CAD Price Forecast: Technical outlook

Daily chart

The USD/CAD depicts the pair is under some buying pressure, as witnessed by the loonie testing the top of a bearish flag pattern around 1.2406, which would invalidate the pattern in case of being upward broken. Furthermore, the daily moving averages (DMA’s) are above the spot price, with the longer time frame 200-DMA, beneath the short time-frame ones.

For USD bulls, a break above the channel’s top would immediately expose the 200-DMA at 1.2483. The next resistance level would be the 100-DMA at 1.2528.

On the flip side, USD/CAD bull’s failure at 1.2400 leave sellers in control. To accelerate the downward trend, they need a break below 1.2300. Once that is achieved, the next stop on the way south would be the June 23 low at 1.2252.