USD/CAD forecast as it forms handle section of C&H pattern

The USD/CAD price erased some of last week’s gains as the US dollar declined and crude oil prices bounced back. The pair declined to 1.2775, which was slightly lower than last week’s high of 1.2950. 

Covid risks ease

The USD/CAD pair rallied last week as fears of the Covid-19 pandemic remained elevated. The situation worsened after New Zealand announced a lockdown after it confirmed just one case. As a result, investors rushed to the safety of the US dollar while crude oil and other commodity prices retreated.

The pair declined on Monday as the US dollar pulled back. The US dollar index, which tracks the performance of the greenback, declined by 0.20%. The currency declined against most currencies, including the euro, sterling, and the Japanese yen.

Meanwhile, the price of crude oil has jumped substantially. Brent, the global benchmark, rose by more than 1% to $65.56 while West Texas Intermediate (WTI) rose by more than 1.75% to $63.23. Oil prices have an impact on the Canadian dollar because Canada is one of the leading oil producers and exporters in the world.

The USD/CAD will react to the latest US existing home sales numbers. The data is expected to show that total sales declined from 5.86 million in June to 5.80 million in July. Last week, numbers by the Census Bureau showed that the number of US building permits rose in July while housing starts declined. 

The housing market is suffering from significant supply issues even as the cost of building remains elevated.

The pair will also react to the flash manufacturing and services PMI numbers that will come out during the American session. These numbers are expected to show that the two sectors did relatively well in August.

USD/CAD technical analysis

Last week, the USD/CAD pair jumped to 1.2945, which was the highest level in a few months. The pair erased some of these gains and is trading at 1.2775, which is slightly below the key support at 1.2800. It is slightly above the 25-day and 50-day exponential moving averages EMA). At the same time, the Relative Strength Index (RSI) and MACD have been in a bearish trend. Therefore, the pair will likely maintain the bearish trend as it forms the handle section of the cup and handle pattern and then rebound.