USD/CAD Trap in Progress? Smart Money Flips Bearish

USD/CAD is currently in a rebalancing phase after the strong downside correction seen over recent weeks. Following a rejection in the 1.3900–1.4000 supply zone, price retraced down to a major demand area between 1.3500 and 1.3650, where it has shown a notable bullish reaction. The pair is now trading at 1.3734, and multi-frame data suggests we are in a transitional phase—not yet a confirmed bullish trend reversal.

COT Report – Institutional Positioning

The latest Commitments of Traders data (June 10th) reveals critical signals:

Commercials (hedgers and large institutions) have aggressively increased their long exposure on CAD, adding +27,999 contracts. This indicates strong expectations of Canadian dollar appreciation—bearish implications for USD/CAD in the medium term.
Non-Commercials (speculators) reduced their short CAD exposure by -14,319 contracts, signaling that speculative players are starting to unwind long USD/CAD positions.
Overall, the net shift shows institutional sentiment turning bearish on the pair, potentially pointing to a deeper downside once the current technical pullback completes.
USD Index COT – Dollar Momentum Weakening
On the USD Index, Non-Comms have added +1,279 long contracts, but positioning remains moderate. Commercials are flat, suggesting the dollar lacks strong bullish backing. This makes any sustained USD/CAD rally structurally fragile.

Retail Sentiment

Retail traders are 57% short and 43% long on USD/CAD. Although not extreme, this imbalance suggests confidence among retail participants in a bearish move—often preceding a short-term upward squeeze before an eventual trend continuation.

We could therefore see price move toward 1.3900 as a liquidity grab, setting the stage for a larger reversal.

Technical Analysis – Outlook
Key highlights:

A strong bullish reaction occurred from the 1.3500–1.3650 demand zone, previously well-respected.
The weekly RSI is still below the 50-level but is turning upward—momentum is improving.
Price structure shows room for a pullback to the 1.3900–1.4000 supply zone, which aligns with higher-timeframe order blocks.
This zone remains a critical resistance, and unless the macro and positioning context changes, a renewed bearish impulse is expected from this area.

Trading Outlook
The current picture presents a tactical short-term long opportunity, followed by a potential structural short setup.

📈 Scenario 1 – Bullish Pullback (in play):

With price above 1.3700 and consolidating, there’s space for a rally toward the 1.3900–1.4000 supply zone. Ideal for short-term targets.

📉 Scenario 2 – Structural Short (priority bias):

Should price reach 1.3950–1.4000 and show bearish confirmation (e.g., engulfing, doji, rejection on H4/H1), this would be a prime area to initiate swing shorts, targeting 1.3600 and eventually 1.3450.

✅ Final Bias: Structural Bearish – Corrective Bullish

Watch for potential false breakouts above 1.3800–1.3900 to liquidate retail shorts before a more meaningful downside move. The sharp increase in commercial net long CAD positions supports a bearish USD/CAD bias for the coming weeks.