Technical analysis of USD/CAD: Signs of weakening while trading volume remains low during the holiday season

Technical indicators suggest a change in the US dollar’s dynamics

The behavior of the USD/CAD parity during the holiday period has been dominated by fluctuations in the US dollar, significantly limiting the influence of Canadian local factors. According to Scotiabank’s top currency strategists, Shaun Osborne and Eric Theoret, this direct correlation could be coming to an end, especially when considering the patterns emerging on intraday charts.

Recent movements of USD/CAD show technical signals worth noting. The rebound from the December 26 low appears to be losing momentum. Analysts have identified revealing candlestick formations: first a ‘hammer’ pattern that marked a bottom for the US dollar at the end of December, followed now by an inverse ‘hanging man’ formation on contemporary intraday charts. These indicators suggest a possible weakening of the USD’s bullish rally.

Key technical levels and operational scenarios

For the USD to maintain its New Year recovery in the short term, it would need to break above and sustain above the critical level of 1.3810. Failing this, the identified supports would be at 1.3750 and 1.3725, where buyers are likely to reappear.

Current volatility reflects not only the characteristic fluctuations of the period but also the absence of significant Canadian catalysts so far. The December S&P Global Manufacturing PMI contributed little movement, rising slightly to 48.6, a figure that continues to show weakness in the industrial sector.

Canadian economic data as the next catalyst

The scenario will change dramatically with the release of Canadian economic indicators scheduled for the coming days. The calendar includes sectoral PMIs, trade data, and mainly Friday’s employment figures, which could revitalize the pair’s direction.

At the end of last year, the CAD benefited from economic reports exceeding expectations to gain ground. If this positive trend persists in the upcoming data, especially in the employment report, the Canadian dollar would have the necessary fundamentals to continue appreciating against the USD, regardless of the short-term technical fluctuations currently characterizing the market.