USD/CAD Holds Near 1.40 as Canadian Retail Sales Jump and Fed Decision Looms

In August, retail sales rose from –0.7% to 1.0%, reaching 70.4 billion CAD, while the core indicator (excluding fuel and auto parts) improved from –1.1% to 0.7%. The strongest growth came from vehicle and parts dealers (+1.8%), marking the third consecutive monthly gain. New vehicle sales climbed 2.3%, and used cars gained 1.5%, while gas station sales fell for the second straight month by 2.0%. Given this performance and the recent uptick in inflation, the Bank of Canada is expected to keep its key rate unchanged at 2.50% during its upcoming meeting on October 29.

The U.S. dollar trades around 98.70 on the USDX as traders await the Fed’s policy decision on Wednesday at 20:00 (GMT+2). September CPI rose 0.3% month-over-month versus the 0.4% forecast and 3.0% year-over-year versus expectations of 3.1%. As a result, CME FedWatch Tool shows a 96.7% probability of a 25-basis-point rate cut. However, traders remain concerned about the ongoing government shutdown and uncertainty regarding its resolution timeline.

Support and Resistance Levels

On the daily chart, USD/CAD is correcting below the resistance line of the upward channel, bounded between 1.4130 and 1.3860.

Technical indicators maintain a bullish bias: the Alligator indicator shows a wide range, fast EMAs remain above the signal line, and the AO histogram forms correction bars well above the zero level.

Resistance levels: 1.4050, 1.4230.
Support levels: 1.3910, 1.3740.

Trading Scenarios and USD/CAD Forecast

Long positions can be considered after a breakout and consolidation above 1.4050 with a target at 1.4230. Stop-loss — 1.3980. Duration: 7 days or more.

Short positions can be opened after a decline and consolidation below 1.3910 with a target at 1.3740. Stop-loss — 1.4000.