USDCAD movements were impacted initially by geopolitical events, notably U.S. military action in Iran. This drove demand for the dollar, resulting in USDCAD climbing past key levels such as the May trend-line and the 50% retracement at 1.37782, reaching fresh three-week highs.

However, the trend reversed as Wall Street recovered and U.S. yields fell, shifting attention to policy differences within the U.S. Federal Reserve. The resulting dollar decline saw USDCAD retract below the previous high, recently moving under the former support level at 1.37498.

Potential Bull Trap

Dropping below this support suggests a possible bull trap, with 1.37221 as a potential target, underpinned by the 100-hour moving average. Conversely, a move back above 1.3771 and 1.3778 might invigorate buying, with further targets at 1.3814 and 1.3824.

Resistance levels include 1.3778 to 1.3781, 1.3814, and 1.38342. Support levels are noted at 1.37221, 1.3701, and between 1.3685 to 1.3692. The likelihood of a July Fed rate cut stands at 20%, whereas September sees an 80% probability, amid diverging Fed opinions and potential political implications.

With the support at 1.37498 firmly broken, there appear to be pockets of vulnerability gathering pace below, accompanied by renewed questions regarding positioning tied to interest rate forecasts. The lower drift towards 1.37221 is not merely technical—it mirrors broader discomfort in the dollar stemming from the reduced appetite for risk and quiet readjustments in front-end rates. Pressure may now persist as participants start reassessing assumptions on U.S. growth stability and inflation persistence ahead of the next CPI release.

We are observing how rate expectations—especially between July and September—inject volatility into intraday flows. Recent remarks by Powell’s colleagues indicate a widening schism in their outlook, and markets have squeezed pricing accordingly. With a 20% probability now priced for July and four out of five bets leaning on a September adjustment, short-term dollar positioning remains highly reactive to even minor shifts in data. The growing anticipation around disinflation prompts reallocation trades, especially during quieter sessions when yields slide.

Sentiment and Risk Appetite

The late rebound on Wall Street offered a cushion, but not enough to fully prop up the dollar. Now, ranges above 1.3771 must be watched—not merely as resistance zones, but also as measures of sentiment recovery. Sustained movement above 1.3778 would require conviction from both yield and risk appetite, ideally aligned through a stable equity rebound. However, any stall ahead of 1.3814 may reveal lingering caution and hesitance to chase.

Below, repeated tests of the 1.3701 area followed by any tail into the 1.3685–1.3692 band could provoke momentum stops, and exaggerate the size of counter moves. We have noticed an increase in gamma sensitivities building near those figures—something to bear in mind as expiry windows approach.

With policy uncertainty expanding and recent rates market behaviour diverging from Fed communicator tone, momentum now matters more than conviction. Reactions to incoming U.S. data—especially labour and inflation indicators—should be weighed heavily against the bond market response, not just headline impact. Spot reactions are likely to remain sharp, even if direction lacks follow-through.

As we view it, execution strategies near current levels require careful attention to hourly closes, not just highs and lows. Setups are likely to favour those who allow for temporary breaches above or below defined support-resistance zones, but who respond only once confirmation follows on tighter timeframes. Truncated price extensions either side could invite false moves. Bias can flip quickly should yields decouple from stock behaviour again.

We are treading within a narrower band now, where questions surrounding the next move could rest less on Fed timelines and more on external shocks—not all of which can be predicted from domestic indicators. It remains vital to monitor U.S. treasury movement and the behaviour of oil markets for clues, particularly as position squaring grows ahead of month-end realignment. The next few sessions might not bring clarity, but they could offer edges for those dialled in.

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