USD/CAD Forecast: Bears Eye Further Decline Below 1.3800 Amid US-EU Tensions
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USD/CAD trades near 1.3835, consolidating ahead of the US President’s speech at the World Economic Forum in Davos. Investors are watching for signals on US-EU tariffs and the Greenland dispute, while the DXY holds around 98.50.
Technical indicators suggest neutral momentum, with key resistance near 1.3890 and potential downside below 1.3800. In their latest piece, LFtrade experts take a closer look at the subject for readers.
USD/CAD Consolidates Ahead of the US President’s Davos Speech
The USD/CAD currency pair is trading in a tight range around 1.3835 during the late Asian trading session on Wednesday. The pair remains close to its over-a-week low of 1.3815, reflecting a period of consolidation as investors await guidance from the US President at the World Economic Forum (WEF) in Davos at 13:00 GMT.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is trading cautiously near 98.50, signaling muted market sentiment ahead of potential policy announcements. Traders are closely monitoring the US President’s speech for signals on US-EU relations and potential tariff escalations.
US-EU Tensions and Tariff Developments
The US President has escalated tensions with the European Union (EU) by imposing 10% tariffs on several EU member states and the United Kingdom (UK). These measures are linked to the ongoing Greenland crisis, where Washington has expressed interest in acquiring complete and total control over Greenland.
The imposition of these tariffs has been met with strong opposition from EU leaders, and investors are wary of the potential for further trade conflicts. Any escalation could weigh on the Canadian Dollar (CAD), given Canada’s close trade ties with both the US and the EU.
US Treasury Secretary Scott Bessent addressed the issue on Tuesday, urging countries and companies to avoid retaliatory measures. In his interview at the WEF, Bessent emphasized the need for a measured response, advising stakeholders to “let things play out,” according to Reuters.
The tariff environment and ongoing diplomatic friction are critical factors shaping USD/CAD price action, as market participants assess the risk of further protectionist policies and their impact on cross-border trade flows.
Technical Analysis: USD/CAD Near-Term Outlook
Current Price Action
The USD/CAD pair trades flat around 1.3834 as of writing. The 20-Exponential Moving Average (EMA) has flattened near 1.3837 after a modest decline, sitting slightly above the current spot price and acting as a resistance level that caps potential rebound attempts.
A sustained close above the 20-day EMA would signal renewed bullish momentum and could support a move higher. Conversely, failure to reclaim this dynamic resistance may keep price action choppy and uncertain, leaving the USD/CAD vulnerable to further downside.
Momentum Indicators
The 14-day Relative Strength Index (RSI) is currently at 49, indicating neutral momentum. This confirms that the pair is neither overbought nor oversold, reinforcing the current range-bound trading environment.
Fibonacci Levels and Key Supports
From a technical standpoint, measuring the recent move from the 1.4143 high to the 1.3643 low, the 50% Fibonacci retracement level at 1.3893 acts as a near-term resistance pivot. Breaching this level could pave the way for gains toward the 61.8% Fibonacci retracement at 1.3952, offering a potential short-term upside target.
On the downside, a break below the psychologically important level of 1.3800 could accelerate the decline, opening room for further losses toward the round-level support at 1.3700. Market participants should monitor price action around 1.3800, as it may determine whether the downtrend resumes or the pair remains sideways.
Market Implications and Trading Strategy
The USD/CAD outlook remains sensitive to geopolitical developments, particularly the ongoing US-EU tariff dispute. Traders should watch for volatility spikes during the US President’s Davos address, which may include policy hints or new measures aimed at the EU.
Given the range-bound movement and neutral RSI, the pair may continue to trade sideways in the short term unless significant news disrupts market expectations. Traders may consider using technical triggers such as EMA crossovers or Fibonacci retracement levels to guide entry and exit points.
Conclusion: Cautious Outlook for USD/CAD
In summary, the USD/CAD pair faces more downside risk below 1.3800, amid ongoing US-EU tensions and tariff measures linked to the Greenland dispute. The current consolidation reflects investor caution as the US President’s WEF speech approaches, while technical indicators suggest a neutral momentum profile with key resistance near 1.3893 and support around 1.3700.
Traders and investors should remain vigilant to geopolitical headlines, particularly any further tariff announcements, as these will likely dictate short-term price direction. Technical tools such as the 20-day EMA, RSI, and Fibonacci retracements remain essential for navigating potential volatility and identifying opportunity zones in the USD/CAD market.