The Canadian Dollar fell on Friday when the news surfaced that trade talks with the United States were suspended due to Canada’s Digital Services Tax. However, the currency quickly regained stability as Canada announced plans to withdraw the tax and resume trade discussions, aiming for an agreement by July 21st.

The USD/CAD fair value estimation is set at 1.3576. The sudden increase in funds may reduce enthusiasm for the CAD short-term, but temporary USD strength is considered a selling prospect, as the USD/CAD broader trend remains technically bearish.

Usdcad Trend and Resistance Levels

There was a quick rejection of levels above 1.37, maintaining a focus on potential decreases. The value needs to fall below 1.3650 for a renewed decline, while strong resistance is observed between 1.3750 and 1.3760.

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What we’ve seen lately is a sharp drop in the Canadian Dollar, triggered by reports that trade discussions with the U.S. were halted, with the Digital Services Tax being the sticking point. That reaction was immediate, and not entirely surprising, given how closely market sentiment tracks official trade policy. However, the moment the Canadian government signalled intention to pull the tax and return to negotiations — with a July 21st agreement as the goal — the Dollar began to recover.

This tells us a few things. First, the CAD remains highly reactive to trade rhetoric, even if the actual outcomes are still weeks away. Second, the speed of the rebound suggests participants were already anticipating a diplomatic reversal or putting little weight on a breakdown in negotiations to begin with. We’re reminded how quickly sentiment can shift in a policy-driven FX pair.

Factors Influencing Usdcad Valuation

At present, the fair value of the USD/CAD has been pegged at 1.3576. This figure is not arbitrary — it’s rooted in relative yield comparisons, growth expectations, and positioning. Now, short-term enthusiasm for the Canadian Dollar may be dampened by incoming flows into USD-denominated assets, especially if we keep seeing strength in U.S. data. But this strength is widely seen as temporary. Most institutional models and directional momentum indicators still point to a bearish orientation for the broader USD/CAD pair.

The rejection just above 1.37 reaffirms that traders aren’t comfortable holding long-USD/CAD at elevated levels. That ceiling continues to draw selling pressure. However, we can’t expect meaningful downside until levels below 1.3650 are breached on a closing basis. There’s firm resistance near 1.3750–1.3760, forming a supply zone that hasn’t been convincingly broken in weeks.

From a positioning and risk-reward perspective, those focused on leveraged directional exposure should treat aggression above that resistance with scepticism. One may consider re-evaluating risk parameters if price action begins to form consolidation patterns near highs — a sign that the bearish structure might need to be re-examined.

In the coming days, attention should remain on the shape of diplomatic headlines. Every speech, leak, or official remark will act as a volatility trigger. Reaction to forward-looking data like core inflation or wage metrics will also weigh heavily on the US side of this cross, especially if they shift rate expectations materially.

It’s worth mentioning that tactical set-ups around sentiment reversals and resistance zones still offer defined stop regions and measurable reward profiles. Traders with volatility exposure would do well to monitor changes in realised versus implied, particularly if news reversals keep triggering short-term reversion moves.

We assume that those reading understand that this timing context adds nuance. Not every currency pair responds the same way to a pullback in risk-on positioning, and given Canada’s position as a commodity-linked currency, oil flow and trade optimism can distort otherwise reliable correlations.

Keep an eye on forward contracts and rate differentials. When these drift away from spot, mean-reverting strategies typically edge back into focus.

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