Data released on Monday continued to weigh on the Canadian dollar, showing some relief in domestic inflationary pressures. In fact, Canada's Consumer Price Index (CPI) rose 2.2% year-over-year in October, slowing from 2.4%. However, this figure was slightly higher than the expected 2.1%. Additionally, weaker crude oil prices put pressure on the commodity-linked Canadian dollar and supported the USD/CAD pair.

Canada's housing market in October showed signs of recovery, driven by lower borrowing costs. Home sales rose 0.9% month-over-month, marking the sixth increase in seven months. Despite ongoing economic uncertainty, interest rates are now approaching a stimulative range, allowing the upward trend in the market since April to continue. At the same time, Canada's high trade dependence on the U.S. means that the shadow of an ongoing trade war continues to drag on economic performance. Against this backdrop of a still-fragile economy, Prime Minister Mark Carney is facing a crucial vote on his first budget. With the Liberal Party lacking a majority in the House of Commons, the budget's passage hinges on whether some opposition members support or abstain. Although there is a potential risk of triggering an early election, insiders generally expect the budget to pass narrowly. The budget aims to expand the fiscal deficit to counter U.S. tariff pressures, boost spending on defense and housing, and moderately reduce the number of federal employees. Given the internal divisions within the major opposition party post-election, the Liberals still have a strong chance of remaining in power even if forced into an early election in the short term.

The U.S. dollar is consolidating its strong gains from the previous day, bolstered by diminishing expectations for a dovish Federal Reserve. With limited economic data releases, several Fed officials expressed caution about further monetary easing, prompting investors to lower their expectations for a December rate cut. Coupled with prevailing risk-off sentiment, the U.S. dollar is strengthening as a safe-haven currency, which also provides some support to the USD/CAD pair. However, concerns over weak economic momentum, caused by the longest government shutdown in U.S. history, have made U.S. dollar bulls somewhat cautious. Moreover, traders are waiting for the release of the FOMC meeting minutes on Wednesday and the October U.S. nonfarm payrolls report on Thursday to gain more clarity on the Fed's rate-cut trajectory. These factors will, in turn, have a key impact on the direction of the U.S. dollar and inject new momentum into the USD/CAD pair.

As shown in the daily chart, the Bollinger Bands are narrowing to indicate reduced volatility. The short-term EMA 12 is flattening out, with the price oscillating near the middle band. In addition, the MACD uptrend momentum weakens with the MACD line and the signal line pulling back toward the zero line again. The price is likely to stabilize around the EMA 50, currently near 1.397. The RSI stands at 57, confirming strong bullish sentiment and a high probability of continued upward movement. In the weekly chart, the Bollinger Bands are expanding upwards, suggesting an ongoing bullish trend. The MACD lines remain above the zero line, and the price is trading above the EMA 12, pointing to a likely continuation of the uptrend toward the Bollinger Upper Band or the previous high, around 1.414 and 1.450, respectively. The RSI is at 59 to reflect the market's optimistic sentiment. Therefore, buying at lows is recommended.

Trading direction: Sell

Entry price: 1.405

Target price: 1.44

Stop loss: 1.38

Support: 1.378/1.37/1.357

Resistance: 1.41/1.42/1.44