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USD/CAD: Awaiting US Retail Sales Amidst Central Bank Divergence

USD/CAD: Awaiting US Retail Sales Amidst Central Bank Divergence

As the European trading session kicks off on Monday, the USD/CAD pair grapples with resistance under the 1.3450 area. The downward pressure on the pair is attributed to a weakening US Dollar (USD), compounded by a less-than-robust US Producer Price Index (PPI) report.

Market Dynamics:

Elevated expectations of easing by the Federal Reserve (Fed) persist, fueled by the recent decline in the USD and the subdued PPI figures. All eyes are now on the US December Retail Sales data scheduled for Wednesday, with an anticipated MoM increase of 0.4%, compared to November's 0.3%.

On the Canadian Dollar (CAD) front, the Bank of Canada (BoC) is widely expected to pivot towards interest rate cuts in the coming year after a series of rate hikes. Speculation suggests that the first rate cuts could occur as early as spring.

Technical Analysis:

From a technical standpoint, the USD/CAD price remains within the 50% and 61.8% Fibonacci Zone, positioning itself for a potential retest of the 200 Moving Average and the Dynamic trendline. The confluence of these indicators raises the possibility of a retest, potentially leading to a new downward push in line with the prevailing main trend.

Conclusion:

The USD/CAD pair navigates a complex landscape marked by central bank divergence, economic data releases, and technical signals. The USD faces headwinds, fueled by Fed easing expectations and a lackluster PPI report, while the CAD anticipates potential rate cuts by the BoC. Traders will closely monitor the upcoming US Retail Sales data for further insights into the pair's direction, as it grapples with critical technical levels and evolving market dynamics.