USD/CAD's Decline Extended by Weak US Dollar and Oil Price Slide

Economic

Summary:

The USD/CAD continues to face selling pressure for the fourth consecutive day, largely driven by concerns over a potential US recession due to ongoing tariff disputes and declining Crude Oil prices.

SELL USDCAD

Close Time

CLOSED

1.41590

Entry Price

1.39000

1.43000

1.38224 +0.00077 +0.06%

69.5

Pips

Profit

1.39000

1.40895

Exit Price

1.41590

Entry Price

1.43000

The USD/CAD currency pair continues to trade under a negative bias, marking its fourth consecutive day of declines on Friday. At the time of writing, the pair is hovering around the 1.4070 mark, representing a modest 0.15% decline on the day. This comes after hitting a four-month low the previous day, and it appears set to close out the week with substantial losses. However, a range of factors are in play, making it prudent for traders to exercise caution, particularly those betting on further downside.

The US Dollar (USD), which had made a modest bounce overnight from its lowest levels since October, remains under pressure amid growing concerns that the US economy could slip into a recession. These fears are largely driven by the trade tensions between the US and its global counterparts, particularly the ongoing tariff disputes under President Donald Trump’s administration. Analysts are increasingly speculating that these tariffs could push the US economy into a slowdown, prompting the Federal Reserve (Fed) to resume its rate-cutting cycle. This, in turn, led to a significant decline in US Treasury bond yields overnight, further dampening the appeal of the greenback.

Despite this, the downside for USD/CAD has been somewhat limited by caution in the markets. Traders seem hesitant to make aggressive bets on the Canadian Dollar (CAD), largely due to the looming threat of further trade escalation between the US and Canada. In a sign of the persistent tensions, Canadian Prime Minister Mark Carney reaffirmed on Thursday that retaliatory tariffs on US imports would remain in place. This includes a 25% tariff on all US-made vehicles that fail to meet the requirements of the US-Mexico-Canada Agreement (USMCA), which is expected to deepen the trade rift between the two nations.

Moreover, falling Crude Oil prices have added a layer of complexity to the situation. The Loonie, which is heavily influenced by fluctuations in oil prices due to Canada’s substantial oil exports, has struggled to maintain strength in light of a broad-based decline in global oil prices. Worries that the ongoing trade war between the US and China could hamper global economic growth have already dampened fuel demand, putting additional downward pressure on crude prices. This has undermined the Loonie’s position, providing some support to the USD/CAD pair and limiting the potential for a sharper decline.

In addition, traders appear unwilling to take fresh directional positions ahead of key economic data releases. On the horizon are the US and Canadian jobs reports, which are likely to provide further insights into the health of both economies. A strong employment report from either country could fuel renewed volatility in the currency pair, while a weak report might prompt further risk aversion and safe-haven demand for the USD.

Technical Analysis

From a technical standpoint, USD/CAD is approaching a critical resistance level. The pair has been edging higher and is currently targeting a pullback resistance at 1.4159, which coincides with the 38.2% Fibonacci retracement level. If the pair reaches this point, there is a potential for a reversal to the downside, particularly if broader risk-off sentiment continues to weigh on market sentiment.

For traders looking to capitalize on a potential pullback, the suggested entry point is at 1.4159, with a stop loss placed at 1.4300. This level sits above the 50.0% Fibonacci retracement, which is considered a stronger resistance area. The take-profit level for this trade would be 1.3900, a swing-low support level that could act as a target if the downside momentum builds.

TRADE RECOMMENDATION

SELL USDCAD

ENTRY PRICE: 1.4159

STOP LOSS: 1.4300

TAKE PROFIT: 1.3900

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