USDCAD is testing the resistance level at 1.3710 while consolidating. The pair has traded between 1.3651 and 1.3710 for six days. On Monday, USDCAD approached resistance but faced selling pressure. Support was located at 1.36697, near earlier swing lows, allowing for a rebound during the U.S. session due to renewed dollar interest.

Resistance Zone Analysis

The 1.3707–1.3710 resistance zone has consistently halted rallies since last Tuesday. A brief breach of this zone on Friday, influenced by U.S. tariff news, quickly reversed, confirming 1.3710 as a key barrier. A breakout above 1.3710 could boost bullish sentiment. For an improved bullish outlook, the pair needs to surpass 1.37208 and 1.3730. If it fails to hold above these levels, sellers might target support at the 100-hour MA (1.3687) and 200-hour MA (1.3659). Falling below these levels could favor a bearish trend. Overall momentum shows an upward hint, but traders are waiting for a clear break above 1.3710. Key levels to watch include resistance at 1.3707–1.3710, 1.3730, and 1.3759, with support at 1.3687, 1.3659, and 1.3631.

Trading Strategy Amid Consolidation

The current consolidation phase has this pair appearing as a coiled spring, leading us to prepare for an eventual breakout. The repeated failures at the resistance zone suggest we could benefit from selling premium. Low volatility in this tight range offers a chance to sell out-of-the-money strangles, targeting strikes below 1.3631 and above 1.3759 to take advantage of theta decay while waiting for a market catalyst. Each failed attempt at the highs reinforces the importance of this range, making it a strategic play for near-term income. However, we should also be ready for a breakout. The fundamental context may dictate the direction. The Bank of Canada maintained rates at 4.75% in July but expressed concerns about a slowing economy, hinting at a possible September rate cut, which is bearish for CAD. On the flip side, WTI crude prices remain above $80 a barrel, traditionally offering support for the loonie. From the U.S. perspective, the Federal Reserve’s preferred inflation measure, the Core PCE price index, just registered at 2.6% for the year ending June—the lowest since March 2021. This easing inflation allows the Fed to be more patient, potentially affecting the dollar negatively. This tug-of-war means we’re not just selling volatility; we’re also setting alerts to buy it. If the pair achieves a strong daily close above the 1.3730 high, we plan to buy bull call spreads targeting the 1.3800 area. This provides a defined-risk method to participate in a breakout, reducing the risk of another false move like Friday’s. Conversely, if it decisively breaks below the 200-hour moving average, currently near 1.3659, we’ll buy bear put spreads. Historically, when such a well-defined technical range breaks after multiple tests, the follow-through can be quick and bypass intermediate support. Our goal is to profit from the current stagnation while being ready to pivot quickly when either side proves it can hold new territory. Create your live VT Markets account and start trading now.

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