USDCAD: Markets Reprice Expectation after FOMC pause USD/CADOANDA:USDCADKingCephas2026 The Federal Reserve delivered one of the week's biggest catalysts by leaving interest rates unchanged. While the headline suggested a neutral decision, the market reaction was more nuanced. A segment of traders had expected the possibility of another 25 bps rate hike given persistent inflation risks, higher energy prices, and tariff-related uncertainty. By choosing to hold rates steady, the Fed's decision was interpreted as less hawkish than feared, even if policymakers maintained a cautious tone on inflation. That shift in expectations initially pressured the US dollar before markets began reassessing the Fed's message. What the Chart Is Saying USDCAD continues to trade within the retracement structure that has guided price action over the past two weeks. After rejecting the 23.6% Fibonacci resistance, price rotated lower and once again tested the 38.2% retracement zone. The chart now shows: 23.6% remains the primary resistance. 38.2% is acting as the immediate support zone. The 50% retracement remains the next downside objective if sellers regain control. Price is still respecting the broader lower-high structure despite the increased volatility around the FOMC announcement. The market is waiting for confirmation before committing to the next directional move. Macro Drivers Several themes continue to shape USDCAD: The Fed kept rates unchanged, a decision viewed by many participants as less hawkish than expected. Earlier this month, softer Canadian CPI weighed on the Canadian dollar. Recent US tariffs on selected Canadian goods continue to create headwinds for CAD sentiment. Geopolitical tensions in the Middle East have supported crude oil prices, offering some underlying support to the Canadian dollar and limiting further USDCAD upside. Treasury yields remain highly sensitive to incoming economic data and changes in Fed expectations. These opposing forces explain why USDCAD has entered a consolidation phase instead of developing a sustained trend. What to Watch Next The next major catalyst is US Core PCE inflation, the Federal Reserve's preferred inflation gauge. A stronger-than-expected reading could: Lift Treasury yields. Strengthen the US dollar. Push USDCAD back toward the 23.6% resistance zone. A softer reading would likely: Increase expectations of future easing. Pressure the dollar. Open the door for another test of the 50% retracement. Trading Plan Bullish Scenario Hold above the 38.2% level. Reclaim the 23.6% retracement. Target a move back toward recent swing highs. Bearish Scenario Confirm rejection below the 38.2% zone. Break beneath recent lows. Target the 50% Fibonacci retracement. As always, I'm allowing price action—not predictions to determine direction. The next move will likely be driven by how inflation data reshapes expectations for the Fed's path rather than the FOMC decision alone. What are you watching more closely this week: the Fed's message or the upcoming Core PCE data?