USD/CAD Pulls Back as Dollar Rally Pauses, Loonie Recovers Ahead of Employment Data | Errante
Market Overview
The USD/CAD pair pulled back on Thursday after briefly touching the 1.3700 level as the dollar rally lost steam. This gave the Canadian dollar some relief after it had collapsed in previous sessions. The dollar lost ground as the impacts of Trump’s tariff threats faded.
Fundamental Analysis
The dollar rallied recently after Trump renewed his tariff threats and sent letters to some countries announcing higher levies. However, the rally quickly lost steam as it became clear that the president’s stance was softer. Despite announcing a 25% tariff on Japan and South Korea, Trump said the tariffs would take effect in August. Therefore, this gives both countries more time to work on trade deals.
Additionally, the president stated that he was willing to extend the deadline past August 1 to give countries more time for negotiations. Moreover, major economies like the Eurozone and India did not receive letters. Traders interpreted this as a sign that Trump was confident the talks with these countries would result in trade deals.
Furthermore, traders paid attention to the FOMC meeting minutes, which revealed a more dovish tone. Federal officials believe it will be appropriate to cut interest rates later this year. This represents a significant shift from the previous tone, which conveyed caution and uncertainty. The prospect of lower borrowing costs is bearish for the dollar.
Meanwhile, market participants are awaiting crucial employment figures from Canada. Economists believe the labor market slowed further with the unemployment rate jumping to 7.1%. At the same time, they expect only 900 new jobs, compared to the previous 8,800. A softer report would increase pressure on the Bank of Canada to resume rate cuts. Such an outcome would weigh on the Canadian dollar and lift USD/CAD.
Technical Analysis
On the technical front, the USDCAD H4 chart reveals significant price action around the 1.3758 level, where a large wick candle formed on June 27th, indicating strong rejection and the onset of bearish momentum. This move was followed by a “no demand” setup near the 1.3700 level, which has been retested today, as evidenced by the formation of additional wicks that suggest persistent selling pressure. According to candle range theory, the 1.3700 area also coincides with last week’s high, reinforcing its importance as a key resistance zone. The market’s repeated failure to break above this level, coupled with downward movement, highlights the potential for further declines, especially if upcoming Canadian employment data shows strength. Conversely, if the employment figures disappoint, a decisive breakout above 1.3700, followed by a low-volume retest, could pave the way for continued bullish momentum. Thus, the 1.3700 level remains a critical pivot point for USDCAD in the near term.
