The USDCAD pair is approaching an important swing level before the Bank of Canada (BoC) and Federal Open Market Committee (FOMC) rate decisions. Last week, the US dollar gained some strength without major news and continues to fluctuate as traders await a clear trend. The Federal Reserve is likely to keep interest rates steady, with discussions about a possible cut in September. In Canada, inflation is near the top of the target range, backed by recent positive data. The latest employment report was surprisingly good. The BoC is expected to hold rates steady, with a 50% chance of no further cuts this year. In technical analysis, USDCAD is trading between support at 1.3550 and resistance at 1.3800 on the daily chart.

Technical Analysis

On the 4-hour chart, if USDCAD breaks above resistance, it could rise to 1.3860. The 1-hour chart shows a slight upward trend, suggesting bullish momentum. Buyers aim for new highs, while sellers hope for a reversal. Important economic events this week include US ADP data, US GDP figures, the BoC’s rate decision, the FOMC announcement, and other US and Canadian economic releases. The USDCAD pair is close to the upper end of its established range as we await decisions from the Bank of Canada and the Federal Reserve today. Traders have been trading between the 1.3550 support and the 1.3800 resistance for months, a pattern also seen in other markets. With various economic reports, including GDP and jobs data, a decisive market move is expected soon. As many traders are taking “short US dollar” positions, the market is set up for a potential sharp upward correction in the US dollar. Recent US CPI data showed inflation at 3.2%, highlighting persistent inflation that complicates the Federal Reserve’s decisions. This suggests the Fed will likely keep rates steady today while leaving September cuts on the table. Chair Powell’s comments will be key. In Canada, inflation remains high, with the last reading close to the BoC’s 2.9% upper limit. Coupled with a surprisingly strong employment report from June, this gives the Bank of Canada a reason to adopt a hawkish approach. Consequently, overnight index swaps now anticipate less than one full interest rate cut through the rest of 2025.

Options Strategies

With major news on the horizon, implied volatility for USDCAD options has likely increased, similar to spikes around central bank meetings in late 2024. Traders might consider strategies like long straddles or strangles, which benefit from significant price moves in either direction without needing to predict the outcome. This approach allows you to take advantage of a breakout from the 1.3550-1.3800 range when it occurs. For those with a directional outlook, buying out-of-the-money call options on USDCAD can be a cost-effective way to bet on a hawkish Fed surprise or weak US data later this week. On the other hand, put options could profit from a strong performance by the Bank of Canada that pushes the pair back toward the 1.3550 support. Using options helps define your maximum risk, which is essential given the upcoming events. Create your live VT Markets account and start trading now.

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