Price Reaction at Local Support Could Trigger Fresh Upside Correction

Forex

Economic

Summary:

Should another bullish rejection take place off this floor, a recovery phase could launch toward the 1.4122 local resistance zone, which aligns tightly with the 0.50 Fibonacci retracement level.

BUY USDCAD

EXP

PENDING

1.39100

Entry Price

1.41200

1.38300

1.39442 +0.00063 +0.05%

Pips

PENDING

1.38300

Exit Price

1.39100

Entry Price

1.41200

In the United States, inflation showed a gradual moderation during July. The headline Consumer Price Index (CPI) advanced 0.1% month-over-month following a 0.4% decline in June, while the annual rate dropped to 3.4% from 3.5% previously. Meanwhile, core CPI rose 0.2% on the month after remaining unchanged in the prior period, as its annual pace eased to 2.5% from 2.6%.

Despite this deceleration, inflation continues to hover above the Federal Reserve's (Fed) 2% target, while the recent uptick in crude oil prices keeps presenting upside risks. Against this backdrop, the inflation release did little to alter expectations that the Fed will maintain a tight monetary policy stance over coming months.

Market participants now turn their focus to the upcoming release of July's Producer Price Index (PPI) and initial jobless claims figures. An increase in unemployment benefit applications could heighten concerns regarding a labor market slowdown and put upward pressure on the unemployment rate.

Geopolitically, U.S. President Donald Trump stated on his Truth Social account that the United States holds full control over the Strait of Hormuz and implied that this condition will remain. Concurrently, CNN reported that U.S. embassies across the Middle East will continue operating under reduced staffing due to ongoing tensions between Iran and Israel.

In Canada, minutes from the Bank of Canada's (BoC) July meeting reflected a balanced posture among monetary officials. Policymakers view the economy as continuing to adapt to recent external shocks, maintaining forecasts for a gradual pickup in growth. However, they also voiced concern over the risk that medium-term inflation expectations might begin to edge higher.

Deliberations underscored the presence of upside inflation risks alongside downside risks to economic output. Key drivers of uncertainty include the trajectory of oil prices and trade friction with the United States. Furthermore, the BoC acknowledged that the recent surge in growth could prove temporary, warning that the threat of new U.S. tariffs remains a persistent drag on the country's economic outlook. Price Reaction at Local Support Could Trigger Fresh Upside Correction_1

Price Reaction at Local Support Could Trigger Fresh Upside Correction_1

Technical Analysis

USDCAD has been tracking lower within a downtrend that is closing in on the 1.3900 support level. As price approaches this boundary, it has repeatedly shown bullish reactions; notably, price has not tested these levels since June 10, when a upward rebound pushed price toward a local peak of 1.4248 on June 30. Should another bullish rejection take place off this floor, a recovery phase could launch toward the 1.4122 local resistance zone, which aligns tightly with the 0.50 Fibonacci retracement level.

Meanwhile, the 100 and 200-period moving averages sit at 1.4034 and 1.4089, respectively, with the 200-period average positioning near the aforementioned resistance level—creating a cluster of technical signals that could pull price toward this area during an upward leg.

Looking at the oscillators, the RSI rebounded after recently touching the 24 mark, entering clear oversold territory, and currently sits at 44, leaving ample room to extend its upward correction. Meanwhile, the MACD presents a bullish histogram that still lacks depth, while the signal lines remain submerged in negative territory. Expanding histogram depth alongside a signal line crossover into positive territory would provide USDCAD with a stronger statistical bias to the upside.

Trading Recommendations

Trading direction: Buy

Entry price: 1.3910

Target price: 1.4120

Stop loss: 1.3830

Validity: Aug 25, 2026 15:00:00

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Price Reaction at Local Support Could Trigger Fresh Upside Correction

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