The USDCAD exchange rate rose after President Trump’s comments, suggesting that some trade deals might involve tariffs instead of negotiations. This news caused the Canadian dollar to weaken, driving the exchange rate higher. The USDCAD had already been rising since it hit a low on Wednesday. In today’s trading, it went above the 100-hour moving average at 1.36388 and nearly reached the 200-hour moving average at 1.36801. Initial selling pressure pushed it back down toward the midpoint of July’s trading range at 1.36645.

Midpoint Support and Rally

This midpoint acted as a support level, enabling the pair to bounce back strongly due to the trade news. The rally continued into a resistance zone between 1.3707 and 1.37112, where more selling limited the gains and established a short-term risk boundary. Afterward, the pair fell back toward the 200-hour moving average. The key question is whether this level will provide support and spark the upward momentum seen earlier. Due to the uncertainty from the former president’s comments, traders should prepare for increased volatility. His remarks indicate that trade policy may become unpredictable, leading to sharp price swings instead of a steady trend. In this scenario, buying options that benefit from significant price movements is more appealing than simply trading futures. On a fundamental level, the case for a higher USDCAD is getting stronger, supporting the purchase of call options. Recent data shows Canadian inflation has dropped to 2.7%, giving the Bank of Canada more reasons to lower interest rates, while the stickier US inflation at 3.4% keeps the Federal Reserve on hold. This difference in central bank policies usually results in a stronger US dollar compared to the Canadian dollar.

Strategic Trading and Volatility

The technical levels mentioned give clear points for structuring trades. We see the 200-hour moving average around 1.3680 as a key pivot for starting bullish positions. Buying call options with strike prices just above this level, such as at 1.3700 or 1.3750, would be a direct way to profit from a breakout. However, political headlines can cause rapid swings, so a strategy that benefits from significant movements in either direction is also wise. A long strangle—buying both an out-of-the-money call and put—would effectively capture the expected rise in volatility. This strategy is especially relevant since over $2.7 billion in goods and services are traded between the two countries daily, making the currency pair sensitive to trade issues. Past trade negotiations from 2018-2019 show that headline risks often cause sharp, unpredictable spikes in this currency pair. During that time, implied volatility on USDCAD options increased significantly, rewarding traders who prepared for turbulence rather than a specific direction. We expect a similar trend could happen in the coming weeks. Therefore, we are looking at options that expire in the next 30 to 60 days to take advantage of this potential instability. The current price action, which is stabilizing near key moving averages, offers an opportunity to enter these positions. Our main strategy is to own volatility as political rhetoric is likely to heat up. Create your live VT Markets account and start trading now.

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