The Canadian Dollar (CAD) fell last week due to rising geopolitical tensions, closing weaker. This weekend, it continued to trade around 1.38 against the USD. Currently, the USD has limited potential for further gains against the CAD. The CAD’s performance isn’t driven by fundamentals and is currently disconnected from crude oil prices, even though the USD finished the week on a strong note.

Technical Analysis

The USD/CAD charts indicate recent gains have formed a bullish pattern. Resistance in the mid-1.37s has been broken, suggesting movement might head towards the low/mid-1.38 range. However, mixed trend momentum signals indicate limited upside for the USD. Support is located at 1.3745/50 and 1.3695/00, while resistance is at 1.3860 and 1.4015. This information includes forward-looking statements that involve risks and uncertainties. It’s for informational purposes only, and personal research is necessary before making investment decisions. The information provider does not guarantee accuracy or timeliness, and investing carries substantial risks, including potential total loss of your investment. Despite the Canadian Dollar’s drop last week due to global uncertainty, it remains disconnected from its usual relationship with crude oil prices. This separation, while not unusual, complicates short-term trading strategies often influenced by commodity prices. Right now, the exchange rate’s reaction is more important than the link between energy markets and the Canadian Dollar. Technically, the pair has broken resistance in the mid-1.37s, which previously limited upside. This move suggests a bullish continuation. Still, wider indicators, especially momentum signals, show signs of divergence or diminishing strength, making a strong USD breakout less likely. We are approaching resistance at 1.3860, with tougher resistance near 1.4015. Without a strong breakthrough at these levels, further advances may face strong challenges.

Market Conditions

Support levels are at 1.3745/50, with stronger demand near 1.3695. These levels could present bounce opportunities if prices fall. However, if these levels are not maintained, trend-followers might exit. Given the current volatility, sudden price changes are possible. The shift towards neutral positioning is becoming clear in the trading environment. Jerome Powell’s comments last week, while not aggressively hawkish, lowered expectations for rapid rate cuts, providing support for the USD. This aligns with the dollar’s position across various markets. However, the current upside feels more mechanical than enthusiastic. Due to the overall setup, option volatility may remain high on both sides of the pair. For shorter-term trades, selecting strike prices near key pivot points is essential rather than having strong directional beliefs. There isn’t much near-term economic data in Canada that could change the situation, although inflation news or weaker commodity data might create temporary flows. Regarding monetary policy, the Bank of Canada is in a delicate position. Governor Macklem and his team aren’t in a rush to respond, explaining the lack of a strong CAD recovery. Instead, interest rate differences are less influential for now, further reducing fundamental driving factors. From an execution standpoint, expect range-based opportunities rather than clear breakouts. The growing consensus about topside resistance supports strategies focused on mean reversion. For those managing risk with options or structured forwards, this suggests neutral or slightly bearish positions unless 1.3860 is decisively surpassed. In the upcoming week, the chart will be as important as the current market. Price behavior near resistance will influence momentum and determine whether last week’s rally continues or fades. Until then, capital allocation should prioritize flexibility and planning for different scenarios, as technical missteps may lead to rapid reversals. Create your live VT Markets account and start trading now.

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