USD/CAD is climbing for the fifth day in a row, trading around 1.4110 on Wednesday morning in Europe. The daily chart shows a clear upward trend, with the currency pair moving within an ascending channel. Short-term price momentum is getting stronger as the pair moves above the nine-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is just below 70, which supports a bullish outlook. If USD/CAD keeps rising, it could reach overbought conditions, hinting at a potential pullback. Earlier, USD/CAD hit a seven-month high of 1.4120 during Asian trading. Future gains might reach the upper limit of the channel around 1.4220. On the downside, the main support level is at the key number of 1.4100 and the nine-day EMA at 1.4038. If it breaks below these levels, short-term momentum could weaken, pushing USD/CAD down to test the 50-day EMA at 1.3941 and the channel’s lower boundary around 1.3930. The Canadian Dollar (CAD) is losing ground against several major currencies, particularly the British Pound. With USD/CAD’s strong upward momentum, the trend favors buyers. The current plan is to stay with this trend, possibly by buying call options with a target of 1.4220. This target aligns with the upper boundary of the ascending channel. The strength of the US dollar is expected. Recent economic data from late October 2025 showed that US Core PCE inflation remains above the Federal Reserve’s target. This reinforces beliefs that interest rates will stay high into 2026. Current derivatives markets see less than a 20% chance of a Fed rate cut before the second quarter of next year. On the Canadian side, the CAD faces challenges. WTI crude oil prices recently fell below the key $80 per barrel support level due to concerns over slowing global demand. This, along with the Bank of Canada’s cautious tone in its October 2025 statement, has pressured the loonie. We should watch the 14-day RSI as it nears the overbought 70 mark. This indicates that the upward trend might be losing steam, suggesting a possible short-term pullback ahead. While this doesn’t signal the end of the uptrend, it means we should proceed with caution in the coming weeks. To manage the risk of a potential correction, we might consider buying near-term put options with strike prices close to the 1.4100 support or the 1.4038 nine-day EMA. These options can protect profits from long positions during a downturn. This strategy helps us stay with the main trend while preparing for a temporary dip. Looking back, a similar scenario occurred in the fall of 2022 when USD/CAD became overbought but only took a short break before resuming its rise. This historical pattern suggests that any weakness we may see could be a short pause rather than a complete trend reversal. Thus, a pullback toward the 1.4000 area could be a new buying opportunity.

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