USD/CAD is trading at around 1.3575 as the market digests mixed US Retail Sales data ahead of the Federal Reserve’s upcoming rate decision. High Oil prices and ongoing tensions in the Middle East are giving some support to the Canadian Dollar. The currency pair is currently moving sideways, with traders closely watching the Federal Open Market Committee’s decision. Recent Retail Sales data shows a 0.9% drop in May, falling short of expectations, while auto sales dropped by 0.3%.

Monetary Policy Implications

On a positive note, the control group— which is key for GDP—grew by 0.4%, recovering from a slight decline of -0.1% in April. This mixed data presents different signals for future monetary policy. The ongoing conflict between Israel and Iran raises concerns about the Strait of Hormuz, which could affect global Oil prices and further bolster the Canadian Dollar. Traders will be monitoring Oil price changes and signals from the Federal Reserve in the near future. USD/CAD is facing selling pressure near the 1.3580 mark, testing important support levels. Technical indicators like the Relative Strength Index hint that momentum may be slowing, suggesting a possible short-term consolidation. The US Dollar is the most commonly traded currency worldwide, making up 88% of foreign exchange transactions. The Federal Reserve’s interest rate decisions have a major impact on the Dollar’s value, with quantitative easing often leading to a weaker Dollar.

Traders Anticipation

As USD/CAD hovers around 1.3575, we see a cautious interplay between economic signals and geopolitical issues. The latest US Retail Sales numbers were mixed; while overall sales dropped, the control group—which is crucial for GDP—showed some strength. This contrast keeps traders on edge, eagerly awaiting the Federal Reserve’s next move. We view the 0.4% increase in the control group as a potential safeguard against a wider economic slowdown. However, it does not fully alleviate concerns raised by the broader 0.9% decline. Consequently, any thoughts of monetary tightening should be approached with caution. Powell and his team have consistently linked future rate decisions to consumer activity, and this data presents just enough uncertainty to curb strong directional moves for the time being. At the same time, the Canadian Dollar gains some support from rising Oil prices. With the ongoing conflict in the Middle East introducing new uncertainties, particularly near the Strait of Hormuz, energy markets could remain volatile. Brent and WTI prices are staying above critical levels due to fears of supply disruptions. This bolsters the CAD, even as general market sentiment fluctuates. From a technical perspective, the pair has struggled to break above 1.3580 on several occasions, with sellers emerging forcefully at these levels. The RSI indicators indicate diminishing buying interest, reinforcing the idea that the currency pair may continue to consolidate or even decline if upcoming US data underwhelms or if Oil prices rise further. For those involved in macro trading, closely monitoring Fed communications will be crucial. Every speech, press briefing, and policy update is significant. FOMC members seem divided, and new inflation and employment data could sway their internal discussions. In the meantime, traders should remain light in their positions unless fresh data significantly alters expectations. It’s important to remember that the US Dollar is involved in nearly 90% of all forex trades, so even small changes in interest rate expectations can lead to increased volatility. This may draw in speculative interest, potentially exaggerating quiet market movements. Trading strategies in the near term should consider not only Oil and central bank expectations but also key technical levels like 1.3530 and 1.3615. Recently, patience in trading the range—rather than chasing breaks—has proven to be more rewarding. This trend may continue until a clear macro impulse emerges. Create your live VT Markets account and start trading now.

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