USDCAD correction to be followed by rebound to 1.381

The USDCAD currency pair updated the peak of October 2022 at the beginning of this week, which was followed by a strong correction. The massive sell-off of USDCAD, reinforced by technical signals, resulted in losing half of the gains of the monthly uptrend in just two trading sessions. However, the bulls are activating near the level of 1.377, trying to stop further decline in USDCAD. If they seize the initiative, the rate may quickly rebound to 1.381.

Currency market keeps recovering from extremely volatile trades on Friday and Monday. Traders are gradually coming to the idea that a sharp drop in the US currency was excessive, and the price will rebound in the near future. In general, economists and analysts agree that the risk of a recession in the US has increased, but consider these expectations of an active easing of monetary policy by the Fed to be somewhat exaggerated.

Brett Ryan, senior economist at Deutsche Bank, focuses on the reasons why the US unemployment rate rose to 4.3% in July. In his opinion, the rate increased due to a large number of people entering the labor market and not due to mass layoffs. Therefore, the Fed has no reason for an urgent and significant interest rate cut. According to Ryan, the regulator will start its policy easing with a typical step of 0.25% in September, no more than that.

At the same time, another pessimistic purchasing managers' index was released in Canada. PMI of the services sector in July rose slightly from 47.1 to 47.3, but remained well below the 50-point threshold. Meanwhile, industrial sector activity turned out to be the worst this year. In addition, the decline in oil prices to the lowest level since early 2024 is also not in favor of the Canadian dollar's significant strengthening.

The RSI and Stochastic indicators confirm the need for additional deepening of USDCAD correction. A favorable moment to buy will occur when the price approaches 1.3725. It is possible to form long positions at this level with the expectation of a rebound to 1.381.

Consider the following trading strategy:

Buy USDCAD within the range of 1.3725–1.377. Take profit – 1.381. Stop loss – 1.37.