Today, the USD/CAD currency pair climbed above the 1.3787 level for the first time since late January.
→ Demand for the US dollar is being supported by concerns over escalating tensions in the Middle East. Market participants are favouring the USD as a safe-haven asset.
→ The Canadian dollar is under pressure due to domestic economic concerns. According to media reports, recent data point to weak GDP growth and a soft labour market. This increases the likelihood that the Bank of Canada will cut interest rates, while the Federal Reserve is expected to keep them unchanged.
On 23 February, when the pair was trading around the 1.3700 level, we:
→ highlighted the ongoing long-term descending channel and the key support at 1.3500;
→ noted similarities with a rounding top pattern;
→ suggested a scenario in which bears might attempt to regain control and resume the longer-term downtrend.
Indeed, in the following sessions, USD/CAD showed signs of strong selling pressure, with the most pronounced move occurring on 9 March, when the pair dropped below 1.3530.
However, the onset of the Middle East conflict and other factors have significantly shifted market sentiment. The long-term descending channel has now been broken, suggesting that:
→ bulls have regained control of the market;
→ the pair may continue to develop within a newly formed ascending channel (shown in blue);
→ the 1.3700 level, which previously acted as resistance, may now serve as support going forward.
