USD/CAD Price Analysis: Strengthens after Descending Triangle breakout

• USD/CAD rises to 1.3730 amid firm speculation that the BoC will start lowering interest rates from June.
• The US Dollar declines despite uncertainty ahead of the US core PCE Inflation data.
• USD/CAD holds the Descending Triangle breakout.

The USD/CAD pair extends its upside to 1.3730 in Thursday’s London session. The Loonie asset strengthens as investors expect that Bank of Canada (BoC) will start reducing interest rates from the June meeting. Sheer strength in the Loonie asset is driven by firm speculation of a prolonged policy divergence between the Federal Reserve (Fed) and the BoC.

The Loonie asset holds intraday gains even though the US Dollar slumps, suggesting that the Canadian Dollar is significantly weak. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to 105.00 after posting a fresh two-week high near 105.20.

The near-term outlook of the US Dollar is still upbeat amid uncertainty ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for April, which will significantly influence speculation for Fed rate cuts in September and is scheduled to be published on Friday. Annual and monthly core PCE inflation readings are estimated to have grown steadily by 2.8% and 0.3% respectively.

Currently, investors expect that the Fed will start reducing interest rates from the last quarter of the year.

USD/CAD strengthens after a breakout of the Descending Triangle chart formation on a daily timeframe. A breakout of the above-mentioned chart pattern results in heavy volume and wider ticks on the upside.

Upward-sloping 20-and 50-day Exponential Moving Average (EMA), which trade around 1.3675 and 1.3650, respectively, suggest that the near-term trend is bullish.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating indecisiveness among market participants.

Fresh buying opportunity would emerge if the asset breaks above April 30 high at 1.3785. This would drive the asset towards April 17 high at 1.3838, followed by the round-level resistance of 1.3900.

In an alternate scenario, a breakdown below May 3 low around 1.3600 will expose the asset to the April 9 low around 1.3547 and the psychological support of 1.3500.

USD/CAD daily chart