USDCAD shows signs of looming correction after prolonged rally

USDCAD is hovering around 1.3800 following a failed attempt to consolidate above the 1.38250 resistance level. The Middle East crisis has recently been the primary driver of the pair’s swings. One moment, demand for the American currency as a key safe haven declines with the news of significant progress in the US-Iran peace talks; the next, the greenback regains strength as tensions escalate. That said, the market seems more and more doubtful regarding the dollar’s ability to sustain a steady uptrend.

The US currency is also weighed down by the cooling economy. The Consumer Confidence Index dropped to 93.1 in May, while two-thirds of American households decided to cut their spending due to soaring inflation. But the troubles do not end there. The labor market appears less healthy, reaffirming expectations of slowing domestic demand in the second half of the year. Under these circumstances, the Federal Reserve (Fed) is likely to maintain current interest rates without further tightening—a good but not great scenario for the greenback.

Meanwhile, the loonie fully relies on the Bank of Canada’s (BoC) rhetoric. Deputy Governor Nicolas Vincent stated that swift rate cuts could fuel inflation risks, so none are expected in the coming months. This provides a strong pillar of support for the national currency, restraining the widening of the monetary gap between the Fed and the BoC. The loonie is also underpinned by a recent agreement on liquefied natural gas (LNG) deliveries to Germany—another brick in Canada’s long-term export prospects.

From a technical standpoint, USDCAD continues to find solid ground below the 1.38250 resistance amid falling trading volumes. The Chaikin Oscillator remains in positive territory but shows no signs of pushing to new local highs, forming a bearish divergence and signaling sluggish capital inflows. A prolonged consolidation phase following an extended uptrend increases the risk of a corrective pullback from the channel.

Pay attention to the trading plan down below:

Sell USDCAD near 1.38065, with Take profit at 1.37250 and Stop loss at 1.38450.

This forecast remains pertinent between May 27 and June 3, 2026.