For the second day running on Wednesday, USD/CAD has shown upside momentum, continuing the rebound that began earlier this week from the 200-day EMA around 1.3960–1.3965. The instrument has broken above the 1.4050 level — where the 100-day SMA lies — and hit a weekly high ahead of key central bank events.
The Bank of Canada is due to announce its rate decision today; the consensus expects a 25-basis-point hike. Nevertheless, the main event remains the conclusion of the Federal Open Market Committee's two-day meeting and the Fed chair's comments afterwards.
In addition, important US macroeconomic data on Thursday — the preliminary Q3 GDP estimate and the personal consumption expenditures (PCE) price index — could shed light on the Fed's policy trajectory. Those data will play a decisive role for the US dollar and may give USD/CAD additional impetus.
Meanwhile, CME Group's FedWatch tool shows the market pricing in more than an 80% chance of a Fed rate increase in December. Such expectations are driven by concerns about inflationary pressure from high energy prices. The pause in US-Iran talks and renewed attacks on Saudi Arabia have also added a geopolitical risk premium, helping the US dollar — a traditional safe-haven asset — attract buyers for a fourth consecutive day.
However, rising crude prices could support the Canadian dollar, which is closely tied to commodity prices, thereby creating an obstacle to further USD/CAD gains and calling for caution among bulls.
On Tuesday, The Wall Street Journal reported that the US has asked several Gulf Arab states to prepare for a short but intense military campaign against Iran that could take place after the US midterm elections on November 3. Additionally, Iran-backed Houthis in Yemen claimed a direct ballistic-missile strike on the Saudi Ministry of Defense building in Riyadh. Against this backdrop and following the suspension of US-Iran talks, fears of further escalation in the Middle East have intensified. This drew new buyers into the crude market, allowing prices to resume their rise after a two-day correction from the multi-month high reached last Friday.
Technically, USD/CAD retains a bullish intraday bias while trading above the 100-day SMA. Immediate resistance is at the convergence of the 9-day EMA and the 50-period exponential moving average (EMA), which the pair is currently trying to overcome. Beyond that, resistance levels lie at 1.4100 and the 1.4135–1.4150 zone, where the 20-day SMA runs. The 100-day SMA provides support. If prices fall further, the next support is the 50-day SMA; below that, the round 1.4000 level. A deeper pullback could test the important support near the 200-day EMA. However, because oscillators are negative, bears have the edge — so intraday bulls should exercise caution.
