USDCAD experienced significant movements due to geopolitical events, especially U.S. military actions in Iran. This increased demand for the dollar, pushing USDCAD above critical levels, including the May trend-line and the 50% retracement at 1.37782, hitting new three-week highs. However, the trend shifted as Wall Street rebounded and U.S. yields decreased, turning focus to differing policies within the U.S. Federal Reserve. This decline in the dollar led USDCAD to fall below the previous high and dip under the past support level of 1.37498.

Potential Bull Trap

Dropping below this support indicates a possible bull trap, with 1.37221 as a target, supported by the 100-hour moving average. On the other hand, if USDCAD rises above 1.3771 and 1.3778, it could trigger more buying, aiming for potential targets at 1.3814 and 1.3824. Resistance levels to watch are 1.3778 to 1.3781, 1.3814, and 1.38342. Support levels are at 1.37221, 1.3701, and between 1.3685 to 1.3692. The chance of a Fed rate cut in July is at 20%, while it’s 80% for September, amid differing opinions from the Fed and possible political effects. With the break of support at 1.37498, vulnerability is growing below, alongside renewed concerns about interest rate forecasts. The drift towards 1.37221 isn’t just technical; it reflects broader unease in the dollar due to decreasing risk appetite and adjustments in short-term rates. Pressure may continue as participants reassess assumptions about U.S. economic stability and inflation ahead of the next CPI report. We see rate expectations, especially between July and September, adding volatility to daily trading. Recent comments from Powell’s colleagues show a widening split in views, causing market adjustments. With a 20% probability for July cuts and four out of five bets on September adjustments, short-term dollar positions are very sensitive to minor data shifts. Growing hopes around disinflation lead to reallocations, especially during quieter trading times when yields drop.

Sentiment and Risk Appetite

The late bounce in Wall Street provided some support but wasn’t enough to fully strengthen the dollar. We need to watch levels above 1.3771—not just as resistance, but as indicators of sentiment recovery. For a sustained move above 1.3778, we need confidence in both yield and risk appetite, ideally linked with a stable equity recovery. However, any hesitation below 1.3814 may signal lingering caution. Repeated tests of the 1.3701 area, followed by movements into the 1.3685–1.3692 range, could trigger momentum stops, amplifying counter moves. We’ve noticed an increase in gamma sensitivities near these levels, which is important as expiration windows near. With expanding policy uncertainty and recent behaviors in the rates market diverging from Fed communications, momentum is more critical than conviction. Responses to incoming U.S. data—especially labor and inflation statistics—should be considered carefully against how the bond market reacts, not just the headline effects. Spot reactions will likely be sharp, even if direction lacks follow-through. We believe that trading strategies near current levels should focus on hourly closes, not just highs and lows. Setups will likely benefit those who allow for temporary breaches above or below support and resistance levels, responding only when confirmation appears on shorter timeframes. Quick price movements on either side could lead to false signals. Sentiment can shift rapidly if yields diverge from stock behavior again. We’re currently operating within a tighter range, where the next moves may depend less on Fed timelines and more on unexpected external factors—not all of which can be forecasted from domestic indicators. It’s essential to keep an eye on U.S. treasury movements and oil market behavior for insights, especially as positions adjust ahead of month-end realignments. The upcoming sessions may not provide clarity, but they could offer opportunities for those who stay alert. Create your live VT Markets account and start trading now.

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