Market update: US dollar stands tall, technical setups on USD/CAD and AUD/USD

The US dollar has staged a solid rebound recently as traders have scaled back bets on how much the Fed will slash borrowing costs in 2024. A couple of weeks ago, markets were largely convinced that the US central bank would deliver more than 160 basis points of easing this year, but those expectations have since moderated sharply.

The odds that the FOMC will start its rate-cutting cycle in March have also diminished, boosting greenback’s bullish reversal along the way.

Given that the Fed's monetary policy outlook, as assessed by Wall Street, remains overly dovish and inconsistent with the strength of the economy, wagers on deep rate cuts could continue to unwind, paving the way for recent moves to extend. This could possibly result in additional gains for the US dollar in the near term.

With this in mind, this article will explore the technical outlook for USD/CAD and AUD/USD, analyzing important price thresholds that should be on every trader's radar in the coming days and weeks.

USD/CAD technical analysis

USD/CAD has rallied vigorously since 2023, clearing critical technical thresholds in the process, including its 200-day simple moving average.

After its recent climb, the pair has reached the gates of a key resistance near 1.3540, where a short-term downtrend line aligns with the 50% Fib retracement of the Nov/Dec slump. Bears must defend this area at all costs; failure to do so could result in a move towards 1.3570, followed by 1.3625.

In the event a bearish reversal off current levels, initial support appears at 1.3480. Although prices may find stability in this zone during a pullback, a decisive breakdown could prompt a swift retrenchment towards 1.3385.

USD/CAD daily chart

AUD/USD technical analysis

AUD/USD sold off from late December through early this week, but has begun to stabilize after finding support near 0.6525, an important level slightly above the 100-day simple moving average. If the nascent rebound starts to gain traction, resistance emerges at 0.6570-0.6580, followed by 0.6650. On further strength, the bulls may launch an attack on the 0.6700 handle.

On the flip side, if sellers return and push prices below the 100-day SMA, the next line of defense against a bearish assault appears at 0.6500, which corresponds to the 61.8% Fibonacci retracement of the Oct/Dec rally. It is vital for this technical floor to hold, as a breakdown could usher in a descent towards 0.6460.

AUD/USD daily chart

_{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}