FX.co ★ USD/CAD

Fundamental Analysis of the USD/CAD USD/CAD is moving around 1.3960, a long way below the 18-month high of 1.4298 reached in early October, as the loonie has recovered most of its autumn losses. The main trigger was the Bank of Canada. It raised its benchmark rate by 25 basis points to 2.5% on October 28, its first increase since July 2023, and warned that further tightening could be needed if high energy costs spill into broader inflation. The move was well telegraphed, but the effect on the yield gap was real, as the hike narrowed the interest rate advantage the US dollar held, lifting the Canadian dollar to a six-week high while the Federal Reserve held steady. The result is a pair that has lost ground steadily: the Canadian dollar has strengthened about 2.08% over the past month. Oil is also working in Canada's favor, since a rebound in crude prices and a weaker US dollar are supporting the loonie. The rebound still has limits, because the Fed's policy rate remains well above Canada's, and USD/CAD sits below its 50-day average near 1.41, which means the trend has turned but has not yet been tested by a major reversal. Traders will look at Canada's September trade balance and October services activity figures, followed by more Canadian and US data later in the week, to judge whether the loonie can hold its gains. 1-Hour Chart Analysis On the 1-hour chart, USD/CAD at 1.3960 is trading in a narrow, sideways band, with the daily range recently stuck between roughly 1.3950 and 1.3990. Price is sitting just beneath the 20 EMA, which is flat to slightly down near 1.3972, and the 5 EMA is below it, a mildly bearish alignment that shows sellers still have a small edge intraday. The squeeze between support and resistance suggests a breakout is being built. A hourly close above 1.3990 to 1.4000, together with the 5 EMA crossing above the 20 EMA, would signal a bounce and could target 1.4030 and 1.4060. On the downside, 1.3950 is the first floor, and a close below it would open 1.3930 and then 1.3900, the round number that many traders watch. Because the pair has been drifting for several hours, avoid trading in the middle of the band; it is more reliable to buy near 1.3950 with a stop under 1.3925, or sell near 1.3990 with a stop above 1.4010. Keep targets modest, around 25 to 30 pips, and remember that Canadian and US data can trigger sudden spikes.

4-Hour Chart Analysis The 4-hour chart shows a clear change in character from last month. After the climb to 1.4298, the pair has formed a series of lower highs, and price now trades below both EMAs, with the 5 EMA under the 20 EMA near 1.4015, which is sloping downward. That is a bearish structure, and every rally to the 20 EMA has met selling. Resistance is layered at 1.4000, then 1.4030 to 1.4060, the level seen just after the BoC decision, and finally 1.4100, where the 50-day average sits. A 4-hour close above 1.4100 would be required to challenge the new downtrend and could open the way to 1.4200. Support begins at 1.3950 and 1.3930, followed by 1.3900 and 1.3850. A decisive break below 1.3850 would bring the September low near 1.3750 into view, a level that represents the bottom of the entire autumn range. Because the move from 1.4298 has been quick, a corrective bounce toward the 20 EMA is possible before any new leg lower, and swing traders may prefer to sell that bounce with a stop above 1.4070, targeting 1.3900. Trend followers should wait for candles to close below 1.3930 before adding to shorts, and should keep position size small, since falling markets can snap back sharply when oil or US yields reverse.