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The USD/CAD pair has been under intense pressure as the divergence of the Bank of Canada (BOC) and the Federal Reserve. It is trading at 1.2400 after the strong Canada retail sales ahead of the Fed decision.
Fed decision and Canada retail sales
The Canadian statistics agency published the latest Canadian retail sales numbers. The data revealed that sales 4.8% in February after dipping by 1.1% in the previous month. In the same period, core retail sales rose by 4.8% after dropping by 1.2% in January. This improvement was mostly because Canada started to reopen its economy in late January after a surge in coronavirus cases.
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These numbers provide further evidence that the Canadian economy is on a fast recovery path. The manufacturing and services sectors have rebounded while inflation has started to pick up. The performance is partly because of the large stimulus issued in the United States.
As a result, the Bank of Canada (BOC) decided to start tapering its asset purchases when it held its meeting last week. It is the first major bank to start reducing the size of its asset purchases.
The USD/CAD is also under pressure because of the divergence between the Fed and the BOC. While the BOC sounded hawkish in its rates decision, the Fed is expected to sound relatively dovish when it delivers its rate decision today.
Economists at most forex and CFD brokers expect it to leave interest rates and quantitative easing policies unchanged and boost the overall outlook of the economy. It will then likely blame the uneven nature of the recovery that has seen the wealthy do better and the poor do worse. A dovish Fed will be bearish for the USD/CAD, and vice versa.
USD/CAD forecast
On the four-hour chart, the USD/CAD has been on a strong downward trend recently. Recently, the pair moved below the lower line of the widening channel pattern. It has now formed a bearish pennant pattern that is shown in black. The pair is still below the 25-day and 15-day exponential moving averages (EMA) while the Stochastic Oscillator has moved below the oversold level. Therefore, there is a possibility that the pair will break out lower as bears target the 1.2350 support level.
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