CAD Positioned to Gain Ground as USD Momentum Slows Amid Holiday Trading Fluctuations

Economic Data May Fuel Canadian Dollar Recovery

The Canadian Dollar has spent much of the holiday period tracking USD movements closely, with minimal domestic catalysts shaping its trajectory. However, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret suggest that technical deterioration in the greenback, combined with an upcoming slate of Canadian economic indicators, could shift the currency pair’s near-term direction in favor of CAD appreciation.

Thin Holiday Conditions Mask Emerging Technical Shifts

Sparse winter trading volumes have kept price fluctuations relatively contained throughout the holiday season, yet beneath the surface, USD technicals are signaling potential exhaustion. The initial ‘hammer’ reversal formation that marked a late-December bottom for the greenback has given way to a more bearish ‘hanging man’ pattern in recent intraday moves—suggesting the USD’s New Year bounce may be running out of steam.

December’s Canadian manufacturing data offered a subtle positive signal, with the S&P Global Manufacturing PMI rising to 48.6, though conditions remain generally subdued. More significantly, the pace of Canadian economic releases is accelerating. Traders should monitor incoming PMI surveys, trade statistics, and Friday’s employment report—data sets that previously demonstrated resilience and could reignite CAD strength if the positive momentum persists.

Technical Hurdles and Support Zones Define USD/CAD Outlook

For the USD to sustain its recent rally within the USD/CAD pair, the greenback must decisively clear the 1.3810 resistance level. Failure to do so would suggest the currency pair’s uptrend is losing conviction. Conversely, if price action breaks below the 1.3750 and 1.3725 support levels, CAD bulls may seize the initiative, particularly if employment data or other economic metrics affirm Canadian economic stability.

The interplay between dwindling USD momentum and potentially stronger Canadian data creates a window of opportunity for CAD recovery. With market volatility likely to increase as the holiday lull ends and economic calendars fill, fluctuations in the USD/CAD pair could intensify—making technical levels and upcoming data prints critical focal points for directional bias in the coming sessions.