USD/CAD, Canadian Dollar Talking Points:
- USD/CAD held a higher-low on the first day of Q3 trade as sellers were unable to test the 1.3500 level, even as the USD set a fresh three-year low.
- I looked at reversal risk in USD/CAD in my past two Canadian Dollar articles, with the ascending triangle on Friday and the shifting price action in the prior week.
- The downtrend in USD/CAD in Q2 was notable and perhaps came on a bit too fast after the pair plummeted below the 1.4000 level. There was a show of resistance at that psychological level, but price then went on to create a falling wedge formation, often tracked with aim of bullish reversal, such as we’re seeing now.
- The 1.3750 level was a major line in the sand as it set the low in May and led to a bounce and lower-high at 1.4000, and that’s what set resistance for the ascending triangle that broke out yesterday with help from both the Bank of Canada and FOMC rate decisions.
Trends can take time to turn, especially strong ones.
There’s often a late-to-the-party element that’s looking to buy higher lows or sell lower highs and that can help to keep the push in the trend-side direction for some time. But, as a one-sided move leads into profit taking, the continuation of that rally or sell-off can face a stiff test. I often say in webinars that a big picture trend reversing is like a cruise ship changing direction in the middle of the ocean – it doesn’t just happen suddenly.
In USD/CAD, we can see a couple of these instances already this year. As we came into 2025 with tariffs the hot button topic, USD/CAD was jumping higher, threatening to up-end the range that had been in-play for almost a decade prior. This hit fever pitch on the first weekend in February, as highlighted in these pieces ahead of time, when tariffs were set to come into effect on Canada and USD/CAD temporarily jumped up to fresh multi-decade highs.
USD/CAD Monthly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
That didn’t last, of course, but that also didn’t dissuade bulls from trying to push the trend, as there was a build of support at 1.4151-1.4178, and the corresponding bounce went back up for a test of the psychological level at 1.4500. That price is a big one as it’s the upper end of that multi-decade range and while it was breached temporarily on the early-February breakout, it held a lower-high in March as buyers suddenly started to get less optimistic.
And as we came into March, there started to show evidence of possible weakness in the U.S. economy. This is when the U.S. Dollar started to fall more consistently, and EUR/USD broke out. USD/CAD was a little slower to push into sell-off but that hit in April, right around the time of Trump’s Liberation Day announcement of tariffs. USD/CAD finally was able to push through the 1.4000 handle and sellers continued to drive all the way until 1.3750 came into play in early-May.
But that’s around when the bearish trend was getting a little too one-sided, leading to a pullback to that same 1.4000 level.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
The fight at 1.4000 lasted for a week but sellers came out in-control, and as we pushed into June a fresh low showed in the pair just above the 1.3500 level, which is another key price in the longer-term range for USD/CAD. That led into a FOMC announcement in June, and the USD caught a bid around that meeting with USD/CAD going along with it, driving up to re-test that 1.3750 level that had previously shown as support.
June 23rd was a key day as this is when the post-Fed rally was scrapped. Michelle Bowman commented that she was ready to cut rates at the next FOMC meeting in July, and the Dollar went right back into sell-off. This is where the divergence really started to show as the USD set a fresh three-year-low on the first day of Q3. USD/CAD, on the other hand, held a higher low, with sellers unwilling to test the 1.3500 level or the prior swing low that had developed above that. And from those two lows, a trendline was built, which when taken with the 1.3750 level that had twice held resistance already, made for an ascending triangle formation.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
That trendline came in as helpful as it held the lows last week, which was another higher-low in USD/CAD. I again highlighted the reversal risk in the pair and so far this week, the ascending triangle has broken as buyers have finally been able to push through resistance.
Bulls now have an open door to run with short-term trends and the big question now is whether broader USD-trends can continue-higher; and if so, USD/CAD seems an attractive candidate to work with that backdrop.
Does this mean that the longer-term range is no more? Not necessarily, as a shorter-term oversold move can see shorts get squeezed and positioning reset to a point that, eventually, USD/CAD becomes attractive again for sellers. The area that I think is of interest for that is the same 1.4151-1.4178 zone that was support back in February, just after the failed breakout around Canadian tariffs.
Until then, I’m expecting a major test at the same 1.4000 handle that held the highs back in May, and another test around a zone of resistance turned support around the 1.3900 level.
Chasing any breakout can be a challenge, especially a counter-trend move, so for support, the 1.3750 area becomes a big spot to look to for buyer demand in pullback scenarios, especially considering that we get Non-farm Payrolls tomorrow morning.
USD/CAD Four-Hour Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
