USD/CAD Bearish Break Looms as Powell Risks Rise
The US dollar is facing significant selling pressure due to rising concerns about Federal Reserve independence and the possibility of Jerome Powell's ousting. This has led many traders to bet on an earlier rate cut, which would be bullish for the Canadian dollar.
However, despite this bearish trend in USD/CAD, it appears that the Canadian dollar may have more room to strengthen. The Bank of Canada (BOC) has already cut rates seven times this cycle and could potentially hold off on further cuts, especially with inflationary indicators heating up and a recent business sentiment survey suggesting concerns about a recession are receding.
Net-short exposure to the Canadian dollar futures rose to a 6-week high among large speculators last week, but it's worth noting that this trend has been declining since August 2024. As such, the potential remains for the Canadian dollar to continue strengthening against the US dollar over the coming weeks.
The weekly chart of USD/CAD shows a recent decline in momentum and a failure to break back above the broken 2021 trendline, which could indicate that prices are poised to break below key support levels. A clean break below 1.3420 would open the door to a retest of the September low and potentially even lower targets.