USD/CAD rose to about 1.3690 in early European trading on Thursday. The pair is still under the 100-day EMA on the daily chart, indicating a bearish outlook. Immediate resistance is at 1.3750, while initial support is at 1.3490. Kevin Warsh is expected to become US Federal Reserve Chair in 2026, which boosts the USD. The market believes the Fed will keep interest rates steady in March, with total cuts ranging from 50 to 75 basis points by the end of the year. Geopolitical tensions could push crude oil prices higher, which may benefit the Canadian Dollar (CAD) since Canada is a major oil exporter. The daily chart shows that USD/CAD continues to face bearish pressure as the 100 EMA moves downward. The RSI is at 46, showing signs of stability. If the price breaks above 1.3750, targets are set at 1.3813 and 1.4012, while further declines could reach as low as 1.3490. The CAD is influenced by several factors including Bank of Canada (BoC) interest rates, oil prices, economic conditions, inflation, and trade balance. Generally, higher oil prices and strong economic indicators are good for the CAD. When inflation rises, it may lead to higher interest rates, attracting foreign investment. Economic strength also encourages investments and interest rate increases, boosting the CAD. Currently, USD/CAD is taking on a bearish trend while being below the 100-day moving average around 1.3690. This situation suggests downward pressure, with strong resistance at 1.3750 and initial support at 1.3490. This indicates potential weakness in the pair in the short term. Meanwhile, the US dollar is getting solid support from recent data. The Consumer Price Index (CPI) for January 2026 revealed inflation rose to 3.2%, lowering the chances of a Federal Reserve rate cut in March to below 10%, according to the CME FedWatch Tool. Speculation about a hawkish Fed chair replacing Jerome Powell in May also strengthens the dollar, limiting losses for USD/CAD. On the other hand, the Canadian dollar is benefitting from rising crude oil prices, a major Canadian export. Geopolitical issues have pushed WTI crude prices above $85 a barrel, giving strong support to the loonie. The Bank of Canada is maintaining interest rates at 4.5%, as Canadian inflation remains higher than desired. We should also consider the market volatility of 2025, where sentiment on interest rates changed quickly with single data points. Last year, the pair experienced sharp reversals when employment data surprised analysts on both sides of the border. This history warns us to be cautious about the current technical trend and its stability if unexpected economic news arises. Given these mixed signals, a straightforward directional trade carries high risk. Derivative traders should explore strategies that take advantage of the pair staying within a certain range, as strong technical resistance and fundamental support may keep it contained. An options strategy focused on the key levels of 1.3490 to 1.3750 could be a wise way to manage the opposing pressures in the weeks ahead.

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