Technical charts reveal weakness in the USD rebound: Opportunity for the CAD?

The USD/CAD pair fluctuations depend more on the dollar than on local data

During this holiday season, the movements of the Canadian dollar have been almost a mirror of what is happening with the US dollar. With few specific surprises on the Canadian side—except for a slight uptick in S&P Global Manufacturing PMI that barely reached 48.6 in December—attention is entirely focused on the strength of the USD. Scotiabank’s top FX strategists, Shaun Osborne and Eric Theoret, warn that this dynamic could be changing in the coming days.

Technical signals indicate that the USD’s bullish momentum is weakening

Intraday chart analysis suggests something important: the rally of the USD that started from its December 26 low shows signs of exhaustion. At the end of the year, a ‘hammer’ pattern marked a bottom for the US dollar, but today’s session presents an opposite ‘hanging man’ formation—a warning of a possible reversal.

For the USD to maintain its short-term bullish momentum, it would need to clearly break the critical level of 1.3810 in the USD/CAD pair. If this does not happen, support would be at 1.3750 and 1.3725.

The Canadian dollar awaits its turn: employment data this Friday could change the game

What’s interesting is that Canada has several economic releases on the immediate horizon: PMIs, trade data, and employment figures on Friday. If these readings surprise to the upside—as some reports did at the end of last year—the CAD could take advantage of the USD’s technical weakness to recover ground.

The clear question is: will the CAD continue to fluctuate in tandem with the dollar, or will Canadian domestic data break that correlation? The coming days will provide answers as markets move with low volume and caution ahead of a possible shift in the currency narrative.