The weaker US dollar and the wait-and-see attitude of the Canadian dollar have shifted the market sentiment towards the short position of USD/CAD.
2025-08-07 16:57:52
The USD/CAD exchange rate continued its decline on Thursday (August 7), trading around 1.3730 during the European trading session. The recent weak performance of the exchange rate is mainly due to the continued downward pressure on the US dollar index, while the market remains highly concerned about US employment data and upcoming economic indicators from Canada.
Recent US economic data has underperformed market expectations, further fueling market bets on an early shift to easing by the Federal Reserve. Last week's non-farm payroll data fell short of expectations, reinforcing the market consensus for a September rate cut, with some traders even betting the Fed may cut again before the end of the year.
Several Federal Reserve officials, including Kashkari, Daly and Cook, publicly stated this week that there are signs of a slowdown in the current labor market and that dynamic adjustments to monetary policy are necessary. This statement has made the market more confident in the Fed's easing tendency.
Meanwhile, US President Trump announced that he will appoint nominees for Federal Reserve Chair and Vice Chair this week. The new candidates could redefine the pace of monetary policy in the coming months. Potential candidates include White House economic advisor Hassett and former Fed Governor Warsh, demonstrating Trump's strong desire to interfere with the Fed's independence, which has caused short-term market anxiety.
Canada's Ivey Purchasing Managers' Index (PMI) and labor market data to be released this Friday will be key variables influencing the Canadian dollar. If the data continues to reflect a cooling labor market trend, the market will reassess whether the Bank of Canada will resume its path of interest rate cuts in the future.
The USD/CAD exchange rate is currently in a volatile downward trend on the 240-minute candlestick chart. The exchange rate has recently retreated from a high of 1.3878 and has now fallen below the middle Bollinger Band (1.3777) and the support line at 1.3755. The upper and lower Bollinger Bands are currently at 1.3843 and 1.3712, respectively. The price is trading close to the lower Bollinger Band, posing a risk of testing support at the lower Bollinger Band.
The MACD indicator death cross continues to expand, the MACD histogram has been green for many consecutive days, and the DIFF line and DEA line are moving downward simultaneously, reflecting that the short-selling momentum still dominates the trend, and there has been no obvious divergence or reversal signal.
The RSI indicator is in the relatively weak area of 36.05, on the edge of oversold in the short term, but has not yet formed obvious rebound momentum, indicating that the exchange rate still has room to fall further.
The current low of 1.3721 constitutes the current short-term support. If it fails to hold, it may test the lower Bollinger Band near 1.3712. Conversely, if the exchange rate rebounds above the middle Bollinger Band of 1.3777 in the short term, it will ease the short-term bearish pressure.
On the whole, the current technical pattern shows a typical "pullback confirmation break" pattern. If there is no effective technical rebound in the future, the bearish trend will continue further.
Judging from the shift in market sentiment, the recent decline in the USD/CAD exchange rate is not due to panic selling, but rather a retracement. Growing market expectations for a shift in Federal Reserve policy have put continued pressure on the US dollar index, which is currently trading around 98, a significant decline from its previous high.
In terms of sentiment indicators, the RSI indicator shows that the market is in a slightly oversold state, but has not yet triggered a reversal signal of extreme sentiment. This shows that the current market tends to remain cautious before the data is confirmed, waiting for more signals to guide the direction.
On the other hand, although the Canadian dollar has been dragged down by weak domestic data, the Bank of Canada has not recently released a clear signal of policy shift, which makes the exchange rate trend more subject to the performance of the US dollar itself, showing a "choose the strong from the weak" logic.
From the perspective of the options market, the trading volume of put options is slightly higher than that of call options, indicating that the market expects the exchange rate to continue to decline in the short term, but the volatility level remains stable, showing that sentiment is still relatively rational and has not entered the panic zone.
Bullish Outlook:
If the US dollar index stabilizes and rebounds, and Fed officials begin to revise their previous dovish rhetoric, the US dollar is expected to gain temporary support, driving the USD/CAD pair to retest the upper resistance area. The first target will be the middle Bollinger band at 1.3777, with further upward movement towards the highs of 1.3820 and 1.3878. A break above this high will reactivate the medium-term uptrend.
In addition, if the labor market data released by Canada is far weaker than expected, it will strengthen the market's bets on the Bank of Canada to resume interest rate cuts, which will also become an important catalyst for the exchange rate rebound.
Bearish Outlook:
From the current structural perspective, bearish forces are dominating the USD/CAD exchange rate. If the pair continues to trade below the middle Bollinger Band and breaks below the 1.3721 support level, the pair could quickly decline to around 1.3680. A wider Bollinger Band opening would further open up downside potential, with the next key support likely located at 1.3574 (the previous low).
On the fundamental side, if US initial jobless claims data weakens again, it will exacerbate market concerns about the US economy, dragging down the dollar further. In addition, if Trump's choice of Federal Reserve Chairman is viewed by the market as strongly dovish, it will also further suppress the dollar.
Conclusion
Overall, the USD/CAD exchange rate is currently in a correction phase, with clear technical signs of a breakdown. Combined with continued fundamental pressure on the dollar, short-term bears are in a favorable position. Traders are closely watching the key support level of 1.3721, as a break would accelerate the decline. Whether bulls can regain control will depend on further confirmation from US data and Federal Reserve personnel announcements.
Fundamentals:
Recent US economic data has underperformed market expectations, further fueling market bets on an early shift to easing by the Federal Reserve. Last week's non-farm payroll data fell short of expectations, reinforcing the market consensus for a September rate cut, with some traders even betting the Fed may cut again before the end of the year.
Several Federal Reserve officials, including Kashkari, Daly and Cook, publicly stated this week that there are signs of a slowdown in the current labor market and that dynamic adjustments to monetary policy are necessary. This statement has made the market more confident in the Fed's easing tendency.
Meanwhile, US President Trump announced that he will appoint nominees for Federal Reserve Chair and Vice Chair this week. The new candidates could redefine the pace of monetary policy in the coming months. Potential candidates include White House economic advisor Hassett and former Fed Governor Warsh, demonstrating Trump's strong desire to interfere with the Fed's independence, which has caused short-term market anxiety.
Canada's Ivey Purchasing Managers' Index (PMI) and labor market data to be released this Friday will be key variables influencing the Canadian dollar. If the data continues to reflect a cooling labor market trend, the market will reassess whether the Bank of Canada will resume its path of interest rate cuts in the future.
Technical aspects:
The USD/CAD exchange rate is currently in a volatile downward trend on the 240-minute candlestick chart. The exchange rate has recently retreated from a high of 1.3878 and has now fallen below the middle Bollinger Band (1.3777) and the support line at 1.3755. The upper and lower Bollinger Bands are currently at 1.3843 and 1.3712, respectively. The price is trading close to the lower Bollinger Band, posing a risk of testing support at the lower Bollinger Band.
The MACD indicator death cross continues to expand, the MACD histogram has been green for many consecutive days, and the DIFF line and DEA line are moving downward simultaneously, reflecting that the short-selling momentum still dominates the trend, and there has been no obvious divergence or reversal signal.
The RSI indicator is in the relatively weak area of 36.05, on the edge of oversold in the short term, but has not yet formed obvious rebound momentum, indicating that the exchange rate still has room to fall further.
The current low of 1.3721 constitutes the current short-term support. If it fails to hold, it may test the lower Bollinger Band near 1.3712. Conversely, if the exchange rate rebounds above the middle Bollinger Band of 1.3777 in the short term, it will ease the short-term bearish pressure.
On the whole, the current technical pattern shows a typical "pullback confirmation break" pattern. If there is no effective technical rebound in the future, the bearish trend will continue further.
Market sentiment observation:
Judging from the shift in market sentiment, the recent decline in the USD/CAD exchange rate is not due to panic selling, but rather a retracement. Growing market expectations for a shift in Federal Reserve policy have put continued pressure on the US dollar index, which is currently trading around 98, a significant decline from its previous high.
In terms of sentiment indicators, the RSI indicator shows that the market is in a slightly oversold state, but has not yet triggered a reversal signal of extreme sentiment. This shows that the current market tends to remain cautious before the data is confirmed, waiting for more signals to guide the direction.
On the other hand, although the Canadian dollar has been dragged down by weak domestic data, the Bank of Canada has not recently released a clear signal of policy shift, which makes the exchange rate trend more subject to the performance of the US dollar itself, showing a "choose the strong from the weak" logic.
From the perspective of the options market, the trading volume of put options is slightly higher than that of call options, indicating that the market expects the exchange rate to continue to decline in the short term, but the volatility level remains stable, showing that sentiment is still relatively rational and has not entered the panic zone.
Market outlook:
Bullish Outlook:
If the US dollar index stabilizes and rebounds, and Fed officials begin to revise their previous dovish rhetoric, the US dollar is expected to gain temporary support, driving the USD/CAD pair to retest the upper resistance area. The first target will be the middle Bollinger band at 1.3777, with further upward movement towards the highs of 1.3820 and 1.3878. A break above this high will reactivate the medium-term uptrend.
In addition, if the labor market data released by Canada is far weaker than expected, it will strengthen the market's bets on the Bank of Canada to resume interest rate cuts, which will also become an important catalyst for the exchange rate rebound.
Bearish Outlook:
From the current structural perspective, bearish forces are dominating the USD/CAD exchange rate. If the pair continues to trade below the middle Bollinger Band and breaks below the 1.3721 support level, the pair could quickly decline to around 1.3680. A wider Bollinger Band opening would further open up downside potential, with the next key support likely located at 1.3574 (the previous low).
On the fundamental side, if US initial jobless claims data weakens again, it will exacerbate market concerns about the US economy, dragging down the dollar further. In addition, if Trump's choice of Federal Reserve Chairman is viewed by the market as strongly dovish, it will also further suppress the dollar.
Conclusion
Overall, the USD/CAD exchange rate is currently in a correction phase, with clear technical signs of a breakdown. Combined with continued fundamental pressure on the dollar, short-term bears are in a favorable position. Traders are closely watching the key support level of 1.3721, as a break would accelerate the decline. Whether bulls can regain control will depend on further confirmation from US data and Federal Reserve personnel announcements.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
