USD/CAD holds ground, weak Canadian data caps losses

• USD/CAD faces resistance near a crucial technical level at 1.3944.
• Canada's factory prices fell again, increasing chances of a rate cut and weakening the CAD.
• Support at the November low of 1.3823 holds as RSI shows weak momentum but not yet oversold.

The US Dollar (USD) continues to face pressure from broad-based macro concerns, including high fiscal deficits, prolonged elevated interest rates, and rising geopolitical tensions. 

These structural issues have driven a gradual shift away from the greenback, with investors seeking diversification into other currencies and safe-haven assets.

Despite these headwinds, intermittent support for the USD persists. Recent US economic data showed resilient services and manufacturing PMI figures, signaling continued activity in key sectors. 

However, falling housing price expectations have raised concerns about the sustainability of US growth, especially in a sector traditionally critical to consumer wealth and sentiment.

On the Canadian side, the economic picture has weakened, helping limit USD/CAD's downside. 

Most notably, the Industrial Product Price Index (IPP) for April declined 0.8% MoM, down from a 0.5% increase in March, and below the expected -0.5%. 

This sharper-than-anticipated drop highlights softening factory gate prices, suggesting lower inflationary pressure at the producer level.

This has led markets to price in a higher probability of a Bank of Canada (BoC) rate cut, weakening the Canadian Dollar (CAD) vs the US Dollar, and supporting USD/CAD near recent lows.

USD/CAD clings to Moving Average resistance at 1.3886

On the daily chart, USD/CAD is retesting resistance at the 20-day Simple Moving Average (SMA) at 1.3886. A sustained move above this level would bring the 61.8% Fibonacci retracement of the September low to the February high at 1.3944 into focus, a key level that has repeatedly capped rallies since early May.

If bulls manage to break above 1.3944, the next target would be the psychological 1.4000 level, followed by the 200-day SMA at 1.4026, which marks a major barrier for any trend reversal.

USD/CAD daily chart

On the downside, USD/CAD continues to find support at the November 2024 low of 1.3823, which has held through recent selloffs. A break below that level and psychological support at 1.3800 would expose the 78.6% Fib retracement at 1.3714, and potentially the September high at 1.3648.

The Relative Strength Index (RSI) currently sits at 44.47, below the neutral 50 mark. While this reflects bearish momentum, the reading is not yet in oversold territory, suggesting that further downside is possible before a technical rebound.