- Iran has killed the leader of Hamas, escalating tensions in the Middle East.
- The Fed has opened the door for a September rate cut.
- The data revealed a stronger-than-expected expansion in the Canadian economy.
The USD/CAD outlook turned bullish on Thursday as the US dollar strengthened amid heightened tensions in the Middle East. However, investors were still cheated by upbeat GDP data from Canada and a somewhat dovish Fed meeting.
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There was a scramble for security on Thursday as it became clear that tensions in the Middle East were escalating. A report in the previous session revealed that Iran had killed the leader of Hamas. This development could derail the recent ceasefire talks between Israel and Hamas. Moreover, reprisals are likely to escalate the war. As a result, investors rushed to safe havens like the dollar.
Meanwhile, in the previous session, the dollar fell after the Fed opened the door for a September rate cut. However, Fed Chairman Powell noted that any decision will be based on incoming data.
Meanwhile, US data showed private sector employment rose by 122,000, missing forecasts by 150,000. A weaker labor market will increase the urgency of a rate cut in the US. However, investors are expecting a more significant non-farm payrolls report on Friday.
In Canada, data revealed a stronger-than-expected expansion, boosting the Canadian dollar. GDP rose 0.2% in May, beating estimates for a 0.1% increase. Although the economy is still struggling, this improvement could ease pressure on the BoC to cut rates. The loonie also rose with oil prices due to tensions in the Middle East.
USD/CAD Key Events Today
- US unemployment claims
- ISM manufacturing PMI
USD/CAD Technical Outlook: Bulls challenge bears for control at 30-SMA
On the technical side, the USD/CAD price rose to retest the 30-SMA following a recent change in sentiment. The previous bullish trend paused near the 1.3850 level. Here RSI made a bearish divergence which signaled an upcoming bearish reversal.
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Following this signal, the bears took a breakout below the 30-SMA. However, they found solid support at the 1.3800 support, where the bulls resurfaced. If the SMA remains firm as resistance, the price could break below 1.3800 to make a lower low. On the other hand, the previous bullish trend will continue if the price breaks above the SMA.
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