USD/CAD Price Forecast: Fresh technical breakout comes into play amid Middle East tensions

The USD/CAD pair attracts some follow-through buyers for the fourth consecutive day and climbs to over a three-month high, around the 1.3835 region, during the first half of the European session on Thursday. Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, support the US Dollar (USD) and act as a tailwind for the pair. However, a modest rise in Crude Oil prices could underpin the commodity-linked Loonie and cap any further gains.

Despite US President Donald Trump's ceasefire rhetoric, Iran publicly rejected claims of ongoing negotiations and said that there is no chance of a deal between the two adversaries. Adding to this, Iran turned down a 15-point ceasefire proposal from the US and has reportedly set sweeping demands to wind down the widening Middle East conflict. Furthermore, the deployment of additional US troops has been fueling speculation of a potential ground operation to seize Iran’s key oil export hub at Kharg Island. This points to the risk of a further escalation of the conflict and continues to benefit the USD's global reserve currency status, which, in turn, acts as a tailwind for the USD/CAD pair.

Meanwhile, mixed geopolitical signals remain supportive of elevated energy prices, fueling inflationary concerns and bets for a more hawkish stance from major central banks, including the US Federal Reserve (Fed). In fact, traders seem to have fully priced out the possibility of any further rate cuts by the US central bank and rapidly increasing bets for a hike by the end of this year. The outlook, in turn, triggers a fresh leg up in the US Treasury bond yields, which turns out to be another factor that contributes to the bullish sentiment surrounding the Greenback and the USD/CAD pair. Traders, however, might refrain from placing aggressive directional bets and opt to wait for further developments in the conflict.

In the meantime, energy infrastructure in Iran remains under pressure, which, along with the effective closure of the Strait of Hormuz, lifts West Texas Intermediate (WTI) Crude Oil prices further beyond mid-$92.00s. This, in turn, could limit losses for the Canadian Dollar (CAD) and warrants caution before positioning for any further appreciating move for the USD/CAD pair. The fundamental backdrop, however, seems tilted in favor of bullish traders and suggests that the path of least resistance for spot prices remains to the upside. Hence, any corrective pullback is more likely to be bought into and turn out to be short-lived as a fresh technical breakout on the daily chart remains in play.

USD/CAD daily chart

Technical Analysis:

From a technical perspective, the near-term bias is cautiously bullish as the USD/CAD pair extends above the 50% Fibonacci retracement of the November-January downfall. A subsequent move beyond the 200-day Exponential Moving Average (EMA) underpins the upside tone and validates the constructive outlook. The Moving Average Convergence Divergence (MACD) line stands above its signal and above the zero line with a positive histogram, suggesting strengthening bullish momentum, while the Relative Strength Index (RSI) near 68 signals rising but not yet extreme upside pressure.

Meanwhile, initial resistance aligns with the 61.8% Fibo. retracement level at 1.3882, followed by the 78.6% Fibo. level at 1.3990, while a move through this barrier would open the path toward the 1.4129 swing high. On the downside, immediate support is now located at the reclaimed 200-day exponential moving average and 50% retracement zone around 1.3820–1.3806, with a deeper floor at the 38.2% Fibo. retracement level at 1.3729. A sustained break below this latter level would weaken the bullish structure and expose the 23.6% Fibo. level at 1.3635.

(The technical analysis of this story was written with the help of an AI tool.)