USDCAD, the currency pair consisting of the US dollar and the Canadian dollar, is currently on the path to recovery after a significant decline in December. While positive momentum is gaining traction, it is still uncertain whether this is just a temporary respite or the beginning of a sustained rebound.
After reaching a five-month low of 1.3176 on Wednesday, USDCAD is now experiencing its third straight day of gains. The pair’s slide began two months ago and accelerated in mid-December, causing the momentum indicators to plunge into oversold territory. However, there are signs that the bearish pressures are starting to ease, as both the stochastics and RSI are attempting to exit their oversold zones.
A Long Road to Recovery
Despite the recent positive momentum, there is still a long way to go before a clearer picture of a durable recovery starts to emerge for USDCAD. The pair is currently testing the congestion region of 1.3250, and a daily close above this level followed by a break above the next hurdle of 1.3365 would provide more strength to the bulls. However, a more sustainable rebound would require the price to climb above the 20-day simple moving average (SMA), which is currently situated at 1.3418. This level would lay the groundwork for a potential push towards the 1.3600 area, where the 50- and 100-day SMAs are about to intersect.
While the short-term outlook may seem positive, there is always the possibility of a reversal. If the bullish momentum fades and the price starts to reverse lower, the 1.3200 level represents the nearest and only support barrier preventing USDCAD from resuming its medium-term downtrend. A drop below 1.3200 would clear the path for the pair to revisit the 1.3150 area before potentially reaching the July trough of 1.3091.
The current bounce for USDCAD is still in its early stages, and for the short-term outlook to improve convincingly, the bulls would need to reclaim the 20-day SMA. Only then can the recovery be considered more sustainable. However, if the positive momentum falters and the price fails to climb above key resistance levels, USDCAD could be headed for fresh lows.
The Uncertain Path Ahead
As with any financial market, it is important to approach the recovery of USDCAD with caution. While there are signs of positivity and potential for a rebound, the future of the currency pair remains uncertain. Traders and investors should closely monitor the price movements and key levels to determine whether the recovery is indeed gaining traction or if it is just a temporary respite before further decline.
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