USD/CAD Holds Near Two-Month Low as Oil Strength Supports Loonie

Traders' Opinions

Summary:

USD/CAD trades near 1.3935 and remains close to two-month lows as elevated Oil prices and stronger Canadian employment data support the Loonie. US inflation data will now be critical in determining whether the pair can extend its decline.

SELL USDCAD

EXP

TRADING

1.39300

Entry Price

1.37600

1.40900

1.39348 -0.00043 -0.03%

0.0

Pips

Flat

1.37600

Exit Price

1.39300

Entry Price

1.40900

USD/CAD remains under pressure around 1.3935 on Tuesday, hovering close to its lowest level in two months as higher Oil prices continue to provide support to the commodity-sensitive Canadian Dollar. The pair is little changed on the session, however, as persistent demand for the US Dollar prevents sellers from extending the recent decline.

Crude Oil remains supported by mounting concerns over Middle East supply. The continuing standoff between the United States and Iran has reduced expectations for a quick reopening of the Strait of Hormuz, while disruptions around the Bab el-Mandeb Strait are adding further uncertainty to global energy flows.

The prospect of a prolonged confrontation has increased after Iran reportedly ruled out further negotiations with US President Donald Trump, further diminishing hopes for a near-term resolution. For Canada, one of the world's major Oil exporters, elevated crude prices generally improve the currency's terms of trade and provide an important tailwind for the Loonie.

Domestic fundamentals are also offering support after Friday's Canadian employment figures pointed to continued resilience in the labor market. The combination of stronger employment conditions and higher energy prices has allowed the Canadian Dollar to maintain the advantage against its US counterpart.

Still, USD/CAD sellers are struggling to generate a decisive breakdown.

Despite disappointing US Nonfarm Payrolls data, markets continue to see the possibility of at least one additional Federal Reserve rate increase before year-end. Higher Oil prices themselves could complicate the Fed outlook by generating renewed inflationary pressures, while geopolitical uncertainty is simultaneously supporting safe-haven demand for the Greenback.

This leaves USD/CAD caught between two powerful forces. Higher Oil prices and resilient Canadian fundamentals favor further downside, but persistent US inflation concerns are preventing a more aggressive Dollar selloff.

Wednesday's US Consumer Price Index report is therefore likely to provide the next major catalyst, followed by Producer Price Index data on Thursday. Softer inflation could revive pressure on the Dollar and potentially send USD/CAD below its recent lows, while another upside inflation surprise could strengthen Fed tightening expectations and trigger a recovery in the pair.

Technical Analysis

USD/CAD remains firmly bearish on the 4-hour chart, with price continuing to respect a well-defined descending trendline and maintaining a sequence of lower highs and lower lows. The pair is trading around 1.3930 after breaking beneath the important 1.3980–1.4000 support zone, reinforcing the broader downside structure.

The immediate focus is on the 1.3900–1.3910 region. A decisive break below this area would confirm another bearish extension and expose the major 1.3835–1.3850 support zone. If selling pressure intensifies beneath that floor, the decline could extend toward 1.3750–1.3770.

On the upside, any recovery is likely to encounter initial resistance around 1.3955, corresponding closely with the 23.6% Fibonacci retracement. Stronger resistance sits around 1.3980–1.4000, while the descending trendline reinforces the bearish outlook above this region. A sustained recovery above 1.4000 would be required to significantly reduce immediate downside pressure.

Overall, USD/CAD remains technically bearish while trading below 1.3980–1.4000. In my view, short-term rebounds are likely to remain corrective unless buyers can reclaim this resistance area, with a break below 1.3900 opening the path toward 1.3840 and potentially 1.3760.

TRADE RECOMMENDATION

SELL USD/CAD

ENTRY PRICE: 1.3930

TAKE PROFIT: 1.3760

STOP LOSS: 1.4090

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USD/CAD Holds Near Two-Month Low as Oil Strength Supports Loonie

Technical Analysis

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