Largest Sell-Off in Over Four Years Signals Return to Long-Term Range for USD/CAD
The USD/CAD currency pair is undergoing a dramatic reversal in what is shaping up to be its largest sell-off since 2020, pulling back from its multi-year highs to re-enter a long-standing range that has been in play since 2016. Once soaring with momentum following trade tension headlines and tariff speculation, the pair is now collapsing under the weight of broad-based U.S. dollar weakness and market fatigue at major resistance levels.
This development has stunned many, especially those who watched USD/CAD flirt with new highs earlier in the year. But repeated failures to hold above 1.4500 proved to be a sign of fragility. The sellers have now reclaimed control of the pair, pushing it well below the psychological 1.4000 level, confirming a possible continuation of the broader mean-reverting trend that has defined the pair for nearly a decade.
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Why Did USD/CAD Collapse After a Strong Start to 2025?
Tariff Talk and Political Rhetoric Fueled the Rally
The rally that led USD/CAD to test highs not seen in over 20 years was largely politically driven, sparked by President-elect Trump’s rhetoric around renewed tariffs on Canada. Initial concerns led the pair to break above 1.4000 late in 2024, and a mix of anticipation and speculation extended the momentum into early 2025, especially as markets priced in the possibility of day-one trade action following Trump’s inauguration.
However, as policy timelines slipped, the excitement started to fade. Trump initially signaled February 1st as a deadline for action—only for it to arrive with no concrete implementation. This series of delays and unclear commitments caused instability, with the pair oscillating around major levels before ultimately failing to sustain bullish momentum.
Technical Breakdown: Bears Take the Driver’s Seat
Monthly Chart: Return to the Long-Term Range
From a macro view, the monthly chart shows a textbook rejection at resistance, forming either a spinning top or long-legged doji—both signs of indecision and potential reversal. With buyers unable to sustain pressure above 1.4500, and repeated wicks showing rejection at that level, the door was opened for the kind of bigger-picture mean reversion we’re now witnessing.
Weekly Chart: Sellers Commit to Lower-Low
What started as a weak test of support has evolved into a full-blown bearish breakout. For the first time in weeks, sellers have managed to push USD/CAD to a decisive lower-low, with the price reaching down to 1.3846. This week’s candle shows strong downside follow-through without the kind of bounce that bulls had previously managed to pull off.
Momentum indicators like RSI aren’t yet in oversold territory, hinting that there might be more room for the downtrend to continue, though caution is warranted due to the sharpness of the move.
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Canadian Dollar Struggles as USD/CAD Rises to 1.4260
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Daily Chart: Can the Trend Continue? Watching 1.3981 and 1.4150
On the daily chart, the outlook remains bearish, but the size of the recent drop—more than 360 pips from this week’s highs—makes chasing the move difficult without a clean setup.
1.3981: A Key Short-Term Barrier
Just below the big figure 1.4000 lies 1.3981, a notable swing level that could act as near-term resistance. Traders may view this as a pivot point for initiating fresh short positions, especially if sellers step in aggressively before a retest of 1.4000.
1.4150: The Secondary Resistance Zone
Should USD/CAD manage a bounce, the next logical resistance area would be around 1.4150, a previously defended support level that could now act as a supply zone. Bulls would need a strong catalyst to recapture that area, and barring any surprise shifts in U.S. economic policy or sentiment, that appears unlikely in the short term.
Where Is USD/CAD Headed Next?
Long-Term Range Reasserts Control
This recent reversal appears to reaffirm the long-term range that has guided USD/CAD price action since 2016. Repeated failures at 1.4500, combined with the clean drop back into the channel, suggest that the pair may now trend toward the lower bounds of that multi-year range, particularly if U.S. dollar weakness continues across global markets.
Bearish Outlook Holds—But Caution Is Key
While the bias remains decisively bearish, traders should consider the overextended nature of the recent move when looking for entry points. A short-term bounce into resistance could offer better risk-reward than chasing price at current levels.
Final Thoughts: A New Phase for USD/CAD?
USD/CAD’s parabolic run from late 2024 to early 2025 now appears to have been a bull trap, fueled by fleeting political themes and speculative fervor. With policy timelines slipping and economic fundamentals starting to dominate again, the pair has snapped back to reality.
If the current trajectory holds, traders and investors may be witnessing the beginning of another extended mean reversion phase in USD/CAD—a pattern that has defined the pair for nearly a decade. For now, all eyes remain on the 1.3846 level and whether bears will push for deeper breakdowns—or if a pause is due before the next leg lower.
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