Aims to recapture 1.3800 as US Dollar rebounds ahead of Fed Powell speech

• USD/CAD sets to recapture 1.3800 amid a risk-off mood ahead of Powell’s speech.
• Fed policymakers support one more interest rate hike to ensure the return of inflation to 2% in a timely manner.
• Falling oil prices indicate that investors are less worried about Middle East concerns.

The USD/CAD pair extends a rally inch far from the round-level resistance of 1.3800 in the European session. The Loonie asset is expected to recapture the critical resistance of 1.3800, being supported by a strong recovery in the US Dollar due to a risk-off mood ahead of the speech from Federal Reserve (Fed) Chair Jerome Powell.

The US Dollar Index (DXY) recovery has stretched above 105.80 as various Fed policymakers are seeing one more interest rate hike from the central bank to ensure the return of consumer inflation to 2% in a timely manner. 10-year US Treasury yields have rebounded to near 4.60% amid caution that Jerome Powell could discuss the need to hike interest rates further.

On the oil front, oil prices print a fresh four-month low as concerns over global demand mount. Falling oil prices indicate that investors are less worried about Middle East concerns. It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices impact the Canadian Dollar.

USD/CAD recovered strongly to near the 23.6% Fibonacci retracement (plotted from 9 September at 1.3380 to 1 November high at 1.3900) at 1.3775. The Loonie asset has stabilized above the 50-period Exponential Moving Average (EMA), which indicates that the near-term trend has turned bullish.

The Relative Strength Index (RSI) (14) shifts into the bullish range of 60.00-80.00, which indicates that a bullish momentum has been triggered.

Going forward, a decisive break above October 27 high at 1.3880 would expose the round-level resistance at 1.3900, followed by 13 October 2022 high at 1.3978.

In an alternate scenario, a breakdown below October 24 low around 1.3660 would drag the asset to the round-level support of 1.3600. A further breakdown could expose the asset to October 7 low at 1.3570.

USD/CAD two-hour chart