Support Zone Beckons Buyers for an Upside Momentum Shift

Central Bank Economic

Summary:

If historical behavior repeats, we could anticipate a renewed upward impulse originating from this zone.

Buy USDCAD

EXP

Trading

1.37750

ENTRY

1.38650

TGT

1.37000

-- -- --

Point

Flat

1.37000

CLOSING

1.37750

ENTRY

1.38650

TGT

The latest Canadian inflation data provides a nuanced picture for the Bank of Canada (BoC). Statistics Canada reported that the headline Consumer Price Index (CPI) rose by 2.2% year-over-year (YoY) in November, holding steady compared to October's reading but falling short of market expectations of 2.4%. On a monthly basis, the CPI increased by 0.1%, representing a slowdown from the previous month’s 0.2% rise.

The BoC’s preferred measures of core inflation delivered a mixed signal. Core CPI remained stable at 2.9% YoY in November. Critically, however, the monthly core CPI registered a sharp reversal, falling by 0.1% after a substantial 0.6% increase in October. Overall, these figures suggest prices are stabilizing near the BoC’s 2% target. The softer headline CPI print and the monthly decline in core inflation lend further support to the BoC’s decision last week to keep interest rates unchanged. Policymakers stated that the current level of monetary accommodation is "roughly the right level," citing inflation nearing the target and signs of resilience within economic activity.

South of the border, the Federal Reserve (Fed) announced a 25 basis point (bps) rate cut last Wednesday, despite US inflation hovering near the 3% mark. The central bank's forward guidance was arguably more significant than the cut itself, with the Fed strongly signaling an impending pause in its easing cycle. Chair Jerome Powell emphasized this policy pivot, declaring that the Fed is now in a "wait-and-see" mode and maintaining that current interest rates are positioned at the upper end of "neutrality" estimates.

Powell was transparent about managing the inherent trade-offs within the Fed’s dual mandate. Having already implemented 75 bps of policy easing this year, he affirmed the central bank is "well positioned" to observe how the economy develops. He concluded that after a total of 175 bps of cuts, monetary policy has been shifted "to a level that is certainly not strongly restrictive right now," specifying, "I think it is in a neutral range."

Contributing to this dovish outlook, several key Fed officials provided supportive commentary. Boston Fed President Susan Collins expressed a view that prospective inflation risks are now lower and supported the rate cut based on a shifting balance of risks. New York Fed President John Williams reinforced the critical mandate of bringing inflation back to 2%, noting a lingering hesitancy to both hire and fire in the labor market. He anticipates the Unemployment Rate will stabilize at 4.5% by year-end, with the 2% inflation target only being achieved in 2027. Furthermore, Fed Governor Stephen Miran reaffirmed his dovish stance, projecting a "faster decline in PCE shelter inflation" and arguing that tariffs are not currently inflating goods prices.

In parallel market developments, US Treasury yields are climbing, even as the benchmark 10-year bond rate remains unchanged at 4.19%. Similarly, US real yields, which maintain a strong inverse correlation with Gold prices, are holding firm at 1.926%. Support Zone Beckons Buyers for an Upside Momentum Shift_1

Support Zone Beckons Buyers for an Upside Momentum Shift_1

Technical Analysis

The USD/CAD pair has recently experienced an aggressive downward move that is now approaching a significant support zone near 1.3751. This specific price area has previously served as a launchpad for strong bullish rallies. If historical behavior repeats, we could anticipate a renewed upward impulse originating from this zone. Supporting this reversal potential, the Relative Strength Index (RSI) is currently deep in oversold territory at the 19.28 level. Such extreme readings are likely to draw the attention of prospective buyers, potentially targeting the next resistance level at 1.3865.

The 100 and 200-period Moving Averages (MAs), currently at 1.3987 and 1.3961 respectively, are significantly distant from the current price action. Consequently, a strong bullish correction aimed at reconnecting with these MAs appears technically viable. Conversely, a decisive breach below the 1.3751 support area would invalidate the short-term bullish outlook and open the path for a further decline toward lower support levels.

Trading Recommendations

Trading direction: Buy

Entry price: 1.3775

Target price: 1.3865

Stop loss: 1.3700

Validity: Dec 26, 2025 15:00:00

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