The Canadian dollar has been gaining ground against its US counterpart, but the real story lies beneath the surface. USDCAD looks set for a moderately bearish run over the next three sessions. According to positioning data from Myfxbook and other major CFD platforms, the market is heavily skewed: 67% of retail traders are long, while only 33% are short—a lopsided setup that often acts as a contrarian warning signal.
Over the past 72 hours, the pair has been caught in a tug-of-war: surging oil prices on the one hand and a widening monetary gap between the two central banks on the other.
Let's start with the loonie's side of the story. The main source of its strength has been breaking news from the Middle East. Renewed missile strikes between the US and Iran, along with the closure of the Strait of Hormuz, have sent WTI crude through the roof. As the top net oil exporter to the United States, Canada is swimming in petrodollars, which naturally pushes USDCAD lower. In short, higher fuel costs are a game-changer for the currency.
On the flip side, the greenback is far from giving ground, underpinned by the hawkish rhetoric of the new Federal Reserve (Fed) Chairman, Kevin Warsh. The updated regulatory "dot plot" points to interest rates holding steady at 3.50%–3.75%, with the door still open for another hike. However, this week, the dollar's advantage is being offset by the resilience of Canada's domestic economy. The labor market is holding up, leading investors to believe that the Bank of Canada (BoC) will keep policy tight—stealing the greenback's thunder on the rate front.
Looking ahead to the next three days, both sentiment and oil prices favor the loonie. Selling USDCAD on any localized bounces appears to be the preferred tactical play.
With the retail crowd overwhelmingly long and crude still being red-hot, a drop below 1.41395 looks increasingly likely. If bears can crack this level, it would trigger forced liquidations from margin buyers.
The ultimate recommendation is to sell USDCAD. Lock in profits at 1.41395. Place Stop Loss at 1.41750.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow you to enter a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
