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• USD/CAD appears to be regaining 1.3800 amid risk aversion ahead of Powell’s speech.
• Fed policymakers once again support raising interest rates to ensure inflation returns to 2% quickly.
• The fall in oil prices indicates that investor concerns about the Middle East are easing.

The USD/CAD pair continues rally not far from resistance tower number 1.3800 during the European session. Loonie assets expected to regain strength resistance critical 1.3800, supported by strong US dollar rally on sentiment aversion to risk before the speech by the Chairman of the Federal Reserve (Fed), Jerome Powell.

The rally in the U.S. Dollar Index (DXY) rose above 105.80 as various Fed policymakers anticipate further rate hikes from the central bank to ensure a timely return of consumer inflation to 2%. The yield on the 10-year U.S. Treasury note rallied to near 4.60% amid concerns that Jerome Powell might discuss the need to raise interest rates further.

On the oil side, oil prices hit a new four-month low on growing concerns over global demand. The fall in oil prices indicates that investor concerns about the Middle East are easing. It should be noted that Canada is a major exporter of oil to the United States and falling oil prices have an impact on the Canadian dollar.

USD/CAD recovers strongly to close retracement The 23.6% Fibonacci (traced from September 9 at 1.3380 to the November 1 high at 1.3900) is at 1.3775. The loonie’s assets have stabilized above Exponential Moving Average (EMA) 50 periods, which indicates that the short-term trend has changed to bullish.

relative strength index (RSI) (14) shifted towards the range bullish 60:00-80:00, which indicates that the momentum bullish was triggered.

Looking ahead, a firm break above the October 27 high of 1.3880 would expose resistance round figure at 1.3900, followed by the October 13, 2022 high at 1.3978.

In an alternative scenario, a break below the October 24 low around 1.3660 would take the asset towards support round number 1.3600. A further breakout could expose the asset to the October 7 low of 1.3570.

USD/CAD two-hour chart