The USD/CAD pair has been recovering for the third consecutive day from this year's lowest level, supported by renewed buying interest in the U.S. dollar. Yesterday's optimistic U.S. economic data helped ease recession fears and supported the DXY dollar index, which in turn had a positive impact on USD/CAD.

However, the combination of factors calls for caution among dollar bulls when positioning for further growth. Investors remain wary amid rising concerns over the deteriorating U.S. fiscal outlook. Expectations are also increasing that the Federal Reserve may cut interest rates at least twice in 2025, which could limit the upward potential for both the U.S. dollar and the USD/CAD pair. Traders are awaiting the release of the FOMC meeting minutes for clues on the future path of rate cuts and to identify better trading opportunities.

In addition, important economic reports are expected this week, including the preliminary Q1 GDP data and the Personal Consumption Expenditures (PCE) Price Index due Thursday and Friday. These figures, together with Canada's monthly GDP and oil price trends, could influence the Canadian dollar and provide new momentum for the USD/CAD pair in the second half of the week.

Moreover, higher-than-expected core inflation data in Canada has undermined hopes for a rate cut by the Bank of Canada in June. This, along with a moderate rise in oil prices, could support the Canadian dollar and thereby cap gains in USD/CAD. It would therefore be wise to wait for stronger follow-through buying before confirming that spot prices have established a short-term bottom.

From a technical standpoint, the pair must first break above the 200-SMA on the hourly chart before confirming the formation of a short-term bottom. As long as oscillators on the daily chart remain in negative territory, it will be difficult for prices to achieve a sustainable bullish outcome. The nearest resistance lies at 1.3855; a breakout above this level could open the way to the psychological mark of 1.3900. Conversely, a drop below the 1.3800 level would accelerate a decline toward the yearly low.