The USD/CAD currency pair is experiencing a phase of consolidation as it tests a critical confluence support zone near the 1.3800 psychological level and the nine-day Exponential Moving Average (EMA) at 1.3797.
During Asian trading hours on Friday, the pair trades around 1.3810, pausing its four-day winning streak, suggesting that the short-term bullish momentum may be encountering a temporary barrier. The LevaQuant team, through Philip Stark, sheds light on this complex topic with a comprehensive breakdown.
Technical Overview
Analysis of the daily chart reveals that USD/CAD is moving sideways within an ascending channel pattern, a formation that typically signals a continuation of bullish market sentiment. The pair has maintained levels above the nine-day EMA, reinforcing the short-term price strength, while the 14-day Relative Strength Index (RSI) is positioned slightly above the 50-level threshold, confirming that the upward bias remains active.
In the near term, the USD/CAD faces a key support confluence at the 1.3800 level, closely aligned with the nine-day EMA at 1.3797 and the 50-day EMA at 1.3780. This cluster of technical support levels suggests that buyers are likely to defend this area, potentially preventing a deeper pullback.
A successful rebound from this zone would reinforce the bullish momentum and pave the way for the pair to challenge resistance levels.
Upside Potential
On the upside, the initial resistance barrier is positioned near the four-month high of 1.3924, recorded on August 22. A breach above this level would confirm that bullish pressure is resuming, opening the door to the upper boundary of the ascending channel at approximately 1.3960.
Traders should note that surpassing this critical resistance zone would reinforce the uptrend, potentially targeting the five-month high of 1.4016, which was last observed on May 13.
The daily chart pattern, combined with the RSI and EMA analysis, indicates that upward price momentum remains intact as long as the pair sustains support above the 1.3800–1.3797 zone. Moreover, a continuation above the nine-day EMA is often interpreted by traders as a signal of short-term bullish dominance, suggesting that buyers retain control over market direction.
Downside Risks
Conversely, if USD/CAD fails to hold the confluence support zone, the pair may face increased downside pressure. A break below the 1.3800 psychological level, coupled with a breach of the nine-day EMA, could weaken both short- and medium-term bullish momentum.
In such a scenario, the next support target would likely be the ascending channel’s lower boundary near 1.3750, followed by the two-month low of 1.3721, which was recorded on August 7.
The 50-day EMA at 1.3780 also acts as a dynamic support level, and a decisive move below it would be considered a bearish signal, potentially attracting short positions from traders seeking to capitalize on a temporary trend reversal. Technical analysts closely monitor such moving averages as they often serve as trend-defining indicators, marking the balance between bullish and bearish forces.
RSI and Momentum Analysis
The 14-day RSI, currently above 50, suggests that momentum remains tilted in favor of buyers, although the sideways movement highlights a degree of market indecision.
RSI readings around this level indicate neither overbought nor oversold conditions, leaving room for a potential breakout in either direction. Traders often combine RSI with moving averages and support/resistance zones to confirm trend continuation or reversal signals.
The nine-day EMA, currently aligned with the 1.3800 support, plays a crucial role in the short-term trend analysis. Historically, EMA levels offer traders a dynamic reference point, reflecting recent price action and helping to identify entry and exit points.
A sustained hold above the nine-day EMA typically strengthens the bullish outlook, whereas a decisive breach below it may suggest a temporary weakening of upward momentum.
Conclusion
In summary, USD/CAD is testing a key confluence support zone around 1.3800, reinforced by the nine-day EMA at 1.3797 and the 50-day EMA at 1.3780. The market outlook remains bullish, supported by the ascending channel formation, daily RSI above 50, and short-term momentum above the nine-day EMA.
On the upside, resistance levels at 1.3924 and 1.3960 present potential targets, while a break below support could expose 1.3750 and 1.3721 as downside objectives.
Traders and analysts should closely monitor the interplay between support and resistance levels, moving averages, and momentum indicators, as these factors collectively define the near-term trajectory of the USD/CAD currency pair. With technical indicators signaling a bullish bias, the pair is well-positioned for potential upside continuation, provided that the 1.3800–1.3797 support zone holds firm.
