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Bearish Correction Expected to Extend as Bulls Lose Momentum
Forex
Economic
Summary:
Both indicators recently formed a bearish crossover, and price action has reacted downward upon testing these levels, suggesting the bearish correction could extend toward the local support level at 1.3900.
Sell
TradingUSDCAD
EXP
1.40883
Entry Price
1.39000
TP
1.42100
SL
1.41029 -0.00042 -0.03%
0
Point
Flat
1.39000
TP
CLOSING
1.40883
Entry Price
1.42100
SL
U.S. and Iranian military operations remain paused for a fourth consecutive day. While Washington maintains that Tehran requested this pause, Iranian authorities deny that formal negotiations are underway, beyond contacts held with Oman to ensure safe transit in the region. This backdrop has contributed to a temporary easing of geopolitical tensions, although uncertainty remains high.
On the monetary front, U.S. President Donald Trump renewed public pressure on the Federal Reserve to cut interest rates at its meeting this week. Trump argued that recent inflation figures have been favorable, that costs continue to decline, and that prices could moderate further once Middle East tensions end.
For his part, Treasury Secretary Scott Bessent defended the administration's tax cuts, noting they have provided significant relief to American households, particularly those with low and middle incomes.
Recent U.S. economic indicators offer mixed signals. The four-week moving average of ADP employment fell to 15,000 positions, reflecting a gradual slowdown in the labor market. At the same time, the Conference Board Consumer Confidence Index dropped to 90.8 points in July from the 92.2 previously recorded, suggesting a slight deterioration in household sentiment.
Despite this, markets continue to expect the Federal Reserve to hold interest rates unchanged in the 3.50%-3.75% range. According to the CME FedWatch tool, traders assign a probability close to 62% to this outcome.
In North America, attention is also centered on escalating trade tensions. The Trump administration announced a 50% tariff on nearly $20 billion in imports from Canada, a measure set to take effect on August 19 that adds pressure to the country's economic outlook.
Meanwhile, Canadian inflation showed a sharper deceleration than expected in June. Headline CPI slowed to 2.8% year-over-year from 3.2% in May, mainly helped by falling gasoline prices. More importantly for the Bank of Canada (BoC), core inflation measures came in below expectations and dropped to 1.85% year-over-year, matching the lowest levels observed since 2020.
The combination of core inflation below the 2% target and deteriorating trade relations with the United States reinforces expectations that the Bank of Canada will maintain a cautious stance for an extended period. Consequently, the market may continue to scale back expectations for future rate hikes by the central bank, particularly if inflationary pressures continue to moderate in coming months.
Technical Analysis
USDCAD began a corrective phase after reaching its local high on June 24 at the 1.4249 level, following a very strong upward impulse that originated from 1.3550. Currently, the downward correction has pulled back toward the area where the 100 and 200-period moving averages sit at 1.4109 and 1.4124, respectively. Both indicators recently formed a bearish crossover, and price action has reacted downward upon testing these levels, suggesting the bearish correction could extend toward the local support level at 1.3900.
Looking at the oscillators, the RSI recently reached the 66 level, drawing near overbought territory; however, the key factor is the hidden divergence formed against price action, as higher RSI levels coincided with lower price peaks. This signal suggests bulls are losing strength rapidly. Meanwhile, the MACD shows a histogram transitioning lower, with the signal lines holding just slightly above neutral territory; a bearish crossover here would add further weight to the next move being to the downside.
Trading Recommendations
Trading direction: Sell
Entry price: 1.4088
Target price: 1.3900
Stop loss: 1.4210
Validity: Aug 07, 2026 15:00:00
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