USD/CAD Price Forecast: US Dollar gains momentum and targets 1.3940 area

The US Dollar (USD) gained strength against the Canadian Dollar (CAD) for a fourth straight day on Monday, as speculation of a Federal Reserve rate increase on Wednesday outweighed the typical positive impact of higher oil prices on the Canadian currency. The USD/CAD pair broke through the 1.3870 barrier, with traders eyeing the monthly peak at 1.3940 and potentially beyond.

ING analysts suggest that a Fed rate rise would bolster the dollar's credibility and temper the devaluation trend, a narrative that gained traction amid concerns over Fed independence and recent Treasury interventions in the U.S. On the Canadian side, traders will be watching the August Consumer Price Index (CPI) data, which is anticipated to have slowed after a 0.5% increase in July, with the Bank of Canada's CPI rising at a stable 0.2% rate, unchanged from the prior month.

This lack of inflationary pressure may prevent the Bank of Canada from raising interest rates, further bolstering the USD/CAD pair. Current trading sees USD/CAD at 1.3893, above the range's upper limit from the past two weeks at the 1.3870 level. The recent pattern aligns with a potential Gartley formation, targeting the September 2 high at 1.3940 and possibly extending to the 78.6% Fibonacci retracement level at 1.4050.

Technical indicators, such as the Relative Strength Index (14) surpassing 50 and the MACD histogram showing improving bullish momentum, support this outlook. However, a dip below the 1.3870 level could encounter support at Friday's low around 1.3835. A breach of the September 9 low at 1.3766 would undermine the bullish sentiment.