The USD/CAD pair is showing a lack of movement for the second day in a row, trading around 1.3990 during the European trading session on Thursday. Analyzing the daily chart reveals that the price is contained within a falling wedge pattern, indicating that the selling pressure is diminishing and hinting at a possible bullish breakout.
Currently, the USD/CAD maintains a bearish outlook in the short term, staying below both the nine- and 50-period Exponential Moving Averages (EMAs). The pair has declined from its recent peaks, with the 14-day Relative Strength Index (RSI) dropping to about 39, which suggests ongoing bearish momentum rather than conditions of being overly sold. Meanwhile, the FXS Fed Sentiment Index at around 142 indicates a softer policy environment that is not providing adequate support for the exchange rate at this point.
If the USD/CAD falls further, initial support may emerge at the lower boundary of the falling wedge near 1.3940. A breach below this level could drive the pair toward the five-month low of 1.3732 established on May 21. Additional support can be found at 1.3481, the lowest level since October 2024.
The USD/CAD could see a rebound and retest the primary resistance confluence around the nine-day EMA at 1.4042, followed by the 50-day EMA at 1.4060 and the upper boundary of the falling wedge around 1.4080. A move above this confluence might allow the pair to reach toward the region near an 18-month high of 1.4299, recorded on October 14.
BoC hike signals the start of cautious tightening
Analysts at ING observe that the recent decision by the Bank of Canada to raise rates by 25 basis points to 2.50% was largely expected. This move aligns with market predictions. They note that increasing economic activity and rising concerns about cost pass-through suggest that this isn’t just a one-off decision. However, policymakers have made it clear that they will proceed with caution, which emphasizes a careful stance on further tightening.
