• Iran assassinated a Hamas leader, escalating tensions in the Middle East.

• The Fed opened the door for a September rate cut.

• Data revealed a bigger-than-expected expansion in Canada’s economy.

The USD/CAD outlook turned bullish on Thursday as the US dollar gained amid increased Middle East tensions. However, investors were still digesting upbeat GDP data from Canada and the slightly dovish Fed meeting.

On Thursday, there was a scramble for safety as it became clear that tensions in the Middle East were escalating. A report in the previous session revealed that Iran assassinated a Hamas leader. This development could derail recent talks for a ceasefire between Israel and Hamas. Moreover, retaliations will likely lead to an escalation in the war. As a result, investors rushed to safe-haven assets like the dollar.

Meanwhile, in the previous session, the dollar fell after the Fed opened the door for a September rate cut. However, Fed Chair Powell noted that any decision will be based on incoming data.

Meanwhile, US data showed that private employment rose by 122,000, missing forecasts for 150,000. A weaker labor market will increase the urgency for a rate cut in the US. However, investors are awaiting the more significant nonfarm payrolls report on Friday.

In Canada, data revealed a bigger-than-expected expansion in the economy, boosting the Canadian dollar. The GDP grew by 0.2% in May, beating estimates for a 0.1% growth. Although the economy is still struggling, this improvement might relieve pressure on the BoC to cut rates. The loonie also rose with oil prices due to Middle East tensions.

USD/CAD key events today

• US unemployment claims
• ISM manufacturing PMI

USD/CAD technical outlook: Bulls challenge bears for control at the 30-SMA

On the technical side, the USD/CAD price has risen to retest the 30-SMA after the recent shift in sentiment. The previous bullish trend paused near the 1.3850 level. Here, the RSI made a bearish divergence that signaled a looming bearish reversal.

After this signal, bears took over with a break below the 30-SMA. However, they found solid support at the 1.3800 support, where bulls resurfaced. If the SMA holds firm as resistance, the price might break below 1.3800 to make a lower low. On the other hand, the previous bullish trend will continue if the price breaks above the SMA.

https://www.forexcrunch.com/blog/2024/08/01/usd-cad-outlook-surges-amid-escalating-middle-east-tensions/