Loonie gives back gains ahead of BoC Decision

USD/CAD Price Setup:

The Canadian Dollar continues to trade within a well-defined range ahead of the Bank of Canada (BoC) interest rate decision on Wednesday. Despite recording a 7.2% increase in home sales for December 2020, the Loonie continues to take strain as an increase in Covid-19 related cases has resulted in fresh lockdown measures, hindering prospects of a swift economic recovery.

Although USD weakness helped buoy the demand for the CAD, the approval of an additional $1.9 Trillion of US Fiscal Stimulus has resulted in an increase in demand for long-term US Treasury Yields (10 & 30 year) which remain above 1%.

With interest rates already at record lows, focus now turns to both unemployment and inflation, both contributing factors to central bank policies.

During periods of economic duress, risk sentiment has a tendency of favoring the safe-haven US Dollar, specifically as the highly anticipated US Fiscal Stimulus Package gets priced into the markets; long-term US Treasury yields continue to support USD strength.

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Canadian Dollar (USD/CAD) Price Forecast: Loonie gives back gains ahead of BoC Decision

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USD/CAD Technical Analysis

Currently, bulls trading USD/CAD have failed to push above the key psychological level of 1.2800, with price action threatening the bounds of Fibonacci support. The declining trendline now acts as resistance, forming a penchant for mean reversion while the Moving Average Convergence/Divergence (MACD) continues to lie below the zero line, indicating that the major currency pair may be bordering oversold territory.

USD/CAD Weekly Chart

USDCAD Weekly Chart

Chart prepared by Tammy Da Costa, IG

Meanwhile, the double bottom formation appearing on the four-hour chart indicates that bullish continuation may still be probable, specifically if bulls can break above current resistance, formed by the declining trendline.

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USD/CAD 4 Hour Chart

Canadian Dollar (USD/CAD) Price Forecast: Loonie gives back gains ahead of BoC Decision

Chart prepared by Tammy Da Costa, IG

— Written by Tammy Da Costa, Market Writer for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707

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