What a difference a day (or two) makes On Thursday, the USD/CAD currency pair made a sudden and remarkable turn. As it fell back from a short-term peak above the 1.3700 level, it attracted fresh selling interest. This pernicious decline is only the outcome of a dangerous combination of market forces. It factors in economic data, trade policy, and the recent upward trend in crude oil prices. Analysts are nervously tracking the trajectory of the pair. They are particularly attuned to its approach to important support levels that might determine its short-term trajectory.
On Wednesday, the USD/CAD currency pair reached a high that many traders considered to be an important resistance level. The inability to hold momentum past the 1.3700 barrier has begun to worry bullish traders. Unfortunately, this important pair is now threatened with even deeper cuts. If it does slip under the June monthly swing low close to the 1.3540 area, we will likely witness further declines. Any such move would likely speed the pair along its current path down to the psychological barrier of 1.3500.
As if all of that wasn’t enough, US Dollar’s recent spectacular performance has only further complicated this situation. After hitting a two-week high on Tuesday, the dollar has begun to reverse low immediately. This drop is adding further momentum pushing the USD/CAD pair lower. Wider worries already exist about the damage economic shock from US President Donald Trump’s unpredictable trade policies could cause. This has created an atmosphere of extreme lack of confidence. Each of these individual tariff letters represent a unilateral rate increase of the four tariff ranges (20%-50%) against each of these eight trading partners. These developments have increased uncertainty in the markets, creating a tailwind for the safe-haven Greenback.
Additionally, trade disputes along with muted energy prices have further damaged the CAD Loonie. The strength of the USD/CAD pair is supported by a number of factors. Safe-haven demand traders are piling into the US Dollar as they panic over the prospect of a worsening trade war. The USD/CAD pair has no follow-through selling. That doesn’t mean the bearish sentiment isn’t there, but fear and caution are preventing a more extreme drop.
An important caveat that market analysts are quick to emphasize is that the United States. If the pair breaks under the 1.3640-1.3635 region, it might drop further towards the major 1.3600 figure. If traders find significant demand beneath this level, a bottoming may be in the cards. Such a move could drive spot prices back up to test the intermediate barrier around 1.3765-70. A potential break above this range would likely send prices retesting the 1.3800 level. That’d be the first time we’ve witnessed such a degree since late May.
Even considering the recent downturn, many signs continue to point bullishly. Closing out June, the bullish USD/CAD pair continued to bring on a higher than expected number of jobs—indicating some positive economic stability. The recently released minutes from the June 17-18 Federal Open Market Committee (FOMC) policy meeting provide a telling glimpse into this mind-set. The majority of policymakers project that cutting rates will be warranted sometime this year. They further argued that any price shocks caused by tariffs would be short-lived or modest for the USD/CAD exchange rate.
Traders are on watch for signs of a bullish breakout. They need to recognize that bearish sentiment has kept crude oil futures from fully realizing their recent push above the $68.00 level. The oil market’s performance continues to play a significant role in influencing the Loonie’s strength and, consequently, the USD/CAD pair’s trajectory.
Market participants are watching these developments very closely. Looking ahead, they need to be especially keen observers of important price artwork from highest to lowest to notice when momentum could be changing. Should the price break convincingly under the 1.3555 support area, it may expose the monthly USD/CAD low. If this movement occurs, it will make traders more cautious.