USD/CAD Forecast 16/12: Markets Weigh Fed Policy (Video)

(MENAFN- Daily Forex)

• USD/CAD remains choppy near a well-watched technical level as markets weigh Federal Reserve policy and broader dollar strength.
• With little yield advantage, direction likely depends on moves in other major currency pairs.

The US dollar has been fairly noisy during the trading session in a tight range against the Canadian dollar, but is that really a surprise to most people? This is a very choppy pair. And it's worth noting that the 1.3750 level, basically where we're sitting right now, has been important multiple times in the past. So, I do think it does lend itself to being an area of interest, both from a support and resistance perspective. Market memory coming into the picture suggests that there are decisions to be made here. And I think that's exactly what we're seeing.

Key Technical Levels and Dollar Sensitivity

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A lot of questions out there about what is going to happen with the Federal Reserve and what they're going to do going forward. Quite frankly, I think loosening monetary policy is possible, but I think it's going to be much more gradual than most people had originally anticipated. And that keeps the dollar somewhat firm. The Canadian dollar does get a little bit of a boost from the U.S. economy strengthening to a point, but you also have to keep in mind, this is a pair that is historically choppy because there's so much cross-border action going on between these two currencies that are necessary. It's not a speculation thing. Anybody who's crossed the Ambassador Bridge, as I have, has seen all the trucks.

At this point in time, though, I think the dollar is getting a little cheap. And looking around the forex world, I do think that we are near a pretty significant area of support for the US dollar. So, we'll have to wait and see. But if we can break back above the 1.3833 level, I think at that point, I'll probably have a go at going long here. If we break down below the 1.37 level, that opens up a drop down to the 1.36 level next.

EURUSD Chart by TradingView

The interest rate differential is almost non-existent. So that might keep this pair somewhat quiet in the foreseeable future. But the biggest driver here, I think it's just going to be overall US dollar weakness or strength in other currency pairs. So watch what's going on in the Euro, the Japanese yen, the British pound.

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