Today, as highlighted in our market commentary, all eyes are on the upcoming inflation data from the US, which will undoubtedly be the key market driver. In anticipation of this, let's turn our focus to the USD/CAD pair, which is likely to be heavily influenced by the inflation report.
Currently, the price is testing a critical level at 1.36, marked with yellow on the chart. If you look back to March and April, this level acted as a strong resistance before eventually turning into support for several months. However, at the end of August, this support was broken, and now it's being tested again as a resistance—a classic price action setup where a broken support turns into resistance.
Adding to the significance, the pair is also sitting just below the 38.2% Fibonacci retracement level, which is often a key resistance area in technical analysis. The price made a brief move above the yellow resistance level, but this turned out to be a false breakout, as it couldn't hold. This false breakout, followed by the price dipping back below the resistance, is quite negative and represents a rejection of the key resistance area.
If today's session closes below the 1.36 level, it would confirm a strong sell signal, especially if the US inflation data comes in weaker than expected, which would likely trigger further downside pressure on the USD. For now, the technical picture suggests bearish sentiment, but of course, the fundamental data will play a significant role in dictating the next move.
Let's see how the US inflation data plays out—whether it will provide the necessary fuel for a deeper sell-off, or if the American dollar can find some support.