The USD/CAD pair shifted its long-term trend to the downside last week after breaking below the key support level at 1.3890, amid weakness in the US dollar following the Federal Reserve’s policy meeting.
Last week, the US Dollar Index (DXY) came under selling pressure and declined by 0.97%, driven by the Fed’s decision to cut interest rates by 25 basis points from 4.00% to 3.75%. Nine out of twelve members of the Federal Open Market Committee (FOMC) voted in favor of easing policy. During the press conference, Fed Chair Jerome Powell noted that cooling in the labor market has been slower than expected, while risks of a decline in employment remain. As a result, a continued “dovish” policy path is not guaranteed, and the regulator will closely monitor incoming macroeconomic data.
The Bank of Canada also held a policy meeting last week, leaving its key interest rate unchanged at 2.25%, in line with market expectations. Governor Tiff Macklem explained that the current level of borrowing costs is appropriate to keep inflation close to the 2.0% target. According to him, maintaining rates near the lower bound of the neutral range provides sufficient support for the economy during a period of structural adjustment while containing price pressures. It is also worth noting that Canadian home sales have been recovering steadily over the past two months, although they remain well below 2024 levels. In addition, a Bank of Nova Scotia survey published last week showed that 62.0% of potential homebuyers say economic uncertainty is negatively affecting their finances and acting as a barrier to purchasing property.
The long-term trend in USD/CAD has now turned bearish: the market has broken the key trend support at 1.3890, with downside momentum extending toward the 1.3730 area. If the price consolidates below this level, the decline could continue toward the annual low at 1.3554, while a break below this area would open the way for short positions targeting 1.3438. If buyers manage to defend support at 1.3730, the pair could enter an upward correction, potentially retesting resistance at 1.3890. At present, the instrument is trading below the 21-period and 190-period EMAs, confirming both short-term and long-term bearish trends. The RSI (14) is approaching oversold territory, limiting the attractiveness of opening new short positions at current levels due to the elevated risk of a corrective rebound.
The medium-term trend also turned bearish in early December, when USD/CAD broke below the key support zone at 1.3943–1.3923 and moved into Zone 2 (1.3751–1.3732). If this zone is broken to the downside this week, the next target will be Zone 3 (1.3565–1.3546). However, if Zone 2 holds, an upward correction could develop, with the potential to reach the key trend resistance at 1.3964–1.3945. After testing this area, short positions may be considered with targets at 1.3859 and 1.3753. A trend reversal would require a clear break and consolidation above 1.3964.
Support and resistance levels
Resistance levels: 1.3890, 1.3980, 1.4130.
Support levels: 1.3730, 1.3554, 1.3438.
Trading scenarios and USD/CAD forecast
Short positions may be considered from the 1.3890 level with a target at 1.3730 and a stop-loss at 1.3940. Time horizon: 9–12 days.
Long positions may be considered above 1.3940 with a target at 1.4060 and a stop-loss at 1.3890.