The Canadian Dollar has risen slightly, gaining 0.1% today, but it still lags behind the Australian Dollar and New Zealand Dollar, both of which have increased by about 0.4%. Crude oil prices have steadied, but recent drops could weigh down the Canadian Dollar. The fair value of USD/CAD has dipped to 1.3618, although ongoing trading uncertainties might affect its path toward stability. The July Ivey PMI numbers are coming out soon, following June’s figure of 53.3. Since the end of July, the USD/CAD has given back about half of its previous gains. The current trading is hovering around the 50% Fibonacci retracement support level at 1.3728, indicating possible short-term stability. However, recent weakness in the USD could lead to further declines, with resistance expected between 1.3775 and 1.3800. The Canadian Dollar is struggling compared to other commodity currencies, which is expected given recent market conditions. West Texas Intermediate crude oil prices fell below $75 a barrel this week due to worries about slowing global demand. This situation pressures the Loonie, making it less attractive than other currencies. Canadian economic data is not proving to be very supportive either. The latest Ivey PMI for July was just released at 51.5, a significant drop from June’s 53.3 and below what analysts expected. This follows last week’s jobs report for July, which revealed weaker-than-expected job growth, suggesting a slowing Canadian economy. Looking back at late July 2024, the USD/CAD pair had a strong rally before losing about half of those gains. While it is finding temporary support around the 1.3728 level, the overall economic outlook indicates the US dollar may be stronger. The different economic growth rates between the US and Canada could push this pair higher. For those trading derivatives, this climate suggests that betting on further Canadian Dollar weakness in the next few weeks is a smart move. One strategy could be to buy USD/CAD call options with strike prices just above 1.3800. This would let us take advantage of a potential breakout while keeping our risk limited to the premium we pay. Another option would be to consider the volatility and sell out-of-the-money USD/CAD put options. For example, selling puts with a strike price near 1.3650 would indicate a belief that the pair won’t drop below that level soon. This approach allows us to earn premium income, reflecting confidence that support will hold.

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