Key Points
- US CPI lands on Tuesday with markets expecting a sharp drop from May’s 4.2% to around 3.8%, largely driven by the collapse in energy prices after the mid June ceasefire between the US and Iran. A softer print would reduce the probability of a September Fed rate hike and put pressure on the dollar, which has direct implications for both setups this week.
- USD/CAD has rallied from 1.3750 to above 1.4200 since mid May, but the H4 chart is flashing five bear RSI divergences, the most persistent exhaustion signal of any major pair right now. The Bank of Canada is expected to hold at 2.25% on Wednesday for a sixth consecutive meeting, and the 125 basis point rate differential with the Fed remains the primary driver of Canadian dollar weakness.
- WTI crude oil has bounced from 69.00 to 74.53 with three bull RSI divergences confirming demand at the lows. Iran’s declaration that the Strait of Hormuz is “closed until further notice” and a fourth US strike in a week have reignited supply fears, keeping a risk premium in the barrel even as diplomatic talks continue in parallel.
Last Week in Review
Last week was defined by two forces pulling in opposite directions. On the diplomatic front, the US and Iran agreed to continue technical and peace talks despite the ongoing military exchanges, which initially calmed markets and pushed oil below $70 for the first time since before the war began in late February. That calm was short lived.
By midweek, Iran declared the Strait of Hormuz closed “until further notice,” a claim disputed by US Central Command, which launched its fourth strike in a week to ensure freedom of navigation through the waterway. Oil rallied 5.4% on the week as the reality sank in: even with a ceasefire framework in place, the physical disruption to 20% of global oil and gas trade flows is far from resolved.
On the data front, the RBNZ held rates at 2.25% as expected, while the FOMC minutes from Kevin Warsh’s first meeting offered little new beyond confirming that rate cuts are off the table and at least one hike remains the base case for 2026. The dollar index held steady near 100, setting the stage for this week’s CPI release to be the next decisive catalyst.
USD/CAD: Five Warnings and Counting
Chart: USD/CAD, H4 timeframe (TradingView, SMC)
The H4 chart tells a clear story of a trend that has run hard and is now running out of steam. USD/CAD has rallied in an almost unbroken move from 1.3750 in mid May to above 1.4200 in late June, printing break of structure after break of structure on the way up. The demand zones (the blue shaded areas) are stacked beneath the current price, marking every level where buyers stepped in on pullbacks during the rally.
The problem is the RSI. Five bear divergences have appeared across this move. Each push to a new high has been met with a lower high on the RSI, a pattern that becomes increasingly significant the more times it repeats. The first two divergences appeared in mid May around 1.3900 and were absorbed. The third and fourth came as price pushed through 1.4100, and the fifth appeared at the equal highs near 1.4200. Five consecutive divergences is unusual, and historically signals that the trend is approaching a meaningful correction rather than a minor pullback.
The structure has already started to shift. A bearish change of character at 1.4160 followed by a break of structure near 1.4150 confirms that sellers have retaken short term control. Price is currently sitting at 1.4152, sandwiched between the broken structure above and the demand zones below.
The fundamental backdrop supports the case for continued dollar strength against the loonie, but also creates a window for a pullback. The 125 basis point rate differential between the Fed (3.50 to 3.75%) and the BOC (2.25%) is the primary driver of this rally, and that gap is not closing on Wednesday: the BOC is universally expected to hold for a sixth consecutive meeting. However, Tuesday’s US CPI is the variable that could change everything. If inflation prints below 3.8%, the market will reprice the probability of a September Fed hike lower, weakening the dollar and potentially triggering the pullback that five bear RSI divergences have been warning about. A hot CPI print above 4.0% would do the opposite, giving USD/CAD the fuel to test the high at 1.4230 and potentially break higher.
Adding to the picture, the CUSMA review that began on July 1 adds uncertainty for the Canadian dollar. The US has not agreed to renew the agreement in its current form, and while negotiations continue, the unresolved status weighs on business confidence and capital flows into Canada. The Canadian dollar recently touched a 14 month low near 70 cents to the US dollar, and analysts point to the rate differential rather than trade negotiations as the primary culprit.
The levels are clear. Above, the supply zone between 1.4180 and 1.4230 is the resistance that needs to break for the rally to continue. Below, the first demand zone sits around 1.4000 to 1.4050, with deeper demand at 1.3900 to 1.3920. A CPI driven pullback that reaches the 1.4000 level would represent a healthy correction within the broader uptrend and could offer a re-entry opportunity for traders who missed the initial move.
WTI Crude Oil: The War Premium Returns
Chart: WTI Crude Oil (CFDs), H4 timeframe (TradingView, SMC)
Oil is caught between diplomacy and disruption. WTI crude collapsed from approximately $85 in early June to below $70 in late June as the mid June ceasefire between the US and Iran removed the war premium that had been in the barrel since February. That decline was swift: a series of bearish break of structure moves from $82, through $80, $75, and down to $71 established a textbook sell off on the H4 chart.
The demand zone between $68.50 and $70.00 (the blue shaded area) is where the selling stopped, and the reversal signals are strong. Three bull RSI divergences have appeared at the lows: one in mid June, one in late June, and one in early July. Price made lower lows while RSI made higher lows each time, signalling that selling pressure was fading well before the bounce materialised. The subsequent change of character near $71.50 and break of structure above $73.00 confirmed that buyers had retaken control.
The recovery to $74.53 is being driven by a straightforward catalyst: the ceasefire is not holding. Iran’s declaration that the Strait of Hormuz is closed “until further notice” keeps roughly 20% of global oil supply at risk. The US has responded with its fourth military strike in a week, and while both sides say technical talks will continue, the physical reality is that shipping through the strait remains significantly disrupted. This is not the kind of risk that can be priced out overnight.
The chart tells traders exactly where to watch. The supply zone between $80.00 and $85.00 (the red shaded area) represents the war premium peak, the level where oil traded when the conflict was at its most intense. A return to that zone would require either a complete breakdown of the ceasefire or a significant new escalation. The equal lows near $69.00 mark the structural floor, and a break below would suggest the market has fully discounted the geopolitical risk and is pricing in a genuine resolution.
For the week ahead, oil is likely to remain caught in the $70 to $80 range. The CPI release on Tuesday is indirectly relevant: a softer inflation print would ease pressure on the Fed, weaken the dollar, and provide a tailwind for oil priced in dollars. But the primary driver remains the Strait of Hormuz. Any headline suggesting an escalation beyond the current tit for tat strikes could send oil sharply higher, while a genuine de-escalation would see the war premium continue to drain.
Key Events This Week
Tuesday 14 July US CPI (June)
May printed at 4.2% year on year. The consensus for June is around 3.8%, reflecting lower energy prices after the mid June ceasefire. A softer print would weaken the dollar and reduce September rate hike odds. A hot print above 4.0% would reinforce the hawkish Fed narrative and strengthen the dollar.
Wednesday 15 July Bank of Canada Rate Decision
Expected to hold at 2.25% for a sixth consecutive meeting. The Monetary Policy Report is published alongside the decision, so watch for any shift in language around inflation, growth, or the CUSMA review. The rate differential with the Fed remains the dominant driver of USD/CAD.
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