The Canadian Dollar (CAD) is holding steady, hovering around 1.40. This level has been tested four times in the last three days. According to Scotiabank’s Chief FX Strategists, factors such as spreads and risk appetite are giving slight support to the CAD, increasing its fair value estimate to 1.3858. **Trade Uncertainty Impact** Trade uncertainty is affecting the CAD’s performance. The building permits data set to release at 8:30 ET will likely not influence the market. The CAD’s decline from the mid-1.41 area has leveled out around 1.40, which acts as psychological support. This point is close to the midpoint of the USD’s rally from late October to early November, with a key Fibonacci retracement level at 1.4014. Charts indicate strong support for the USD at 1.40, but without a significant USD rebound, the short-term outlook looks bearish. Current momentum is negative, and broader bullish trends are fading. Support levels are at 1.3890/00; if broken, the CAD could drop to the 1.3900/50 range. The USD/CAD pair is fluctuating around the 1.4000 mark, a significant psychological level. This uncertainty opens opportunities for options traders as the market prepares for its next big move. In this environment, selling volatility with strategies like short straddles at a 1.40 strike could be beneficial in the coming weeks. This pause in momentum comes despite Canadian inflation in October 2025 rising to 2.8%, slightly above expectations. Higher inflation usually strengthens the CAD, but it hasn’t gained traction, indicating other factors are impacting the market and creating a favorable setting for range-trading derivatives. **Crude Oil Price Influence** A major concern is the recent drop in WTI crude oil prices, which fell below $78 a barrel last week for the first time since August 2025. This decline in a key Canadian export supports the USD/CAD floor at 1.40. Traders expecting this support to hold might sell cash-secured puts with a 1.3950 strike price, gaining premium while the market stabilizes. The weakening trend momentum suggests the rally that pushed prices to the mid-1.41s is slowing down. For those who believe a drop is likely, buying December expiry put options is a defined-risk approach to bet on a move towards the 1.3900 level. We saw a similar scenario in late 2023, where a long calm preceded a sharp drop in the pair. With mixed signals from inflation data and commodity prices, a neutral but defined-risk strategy like an iron condor may work well. This involves selling a put spread below support (e.g., 1.3900) and a call spread above resistance (e.g., 1.4100). The aim is to profit from the pair staying within this range as we approach year-end. Create your live VT Markets account and start trading now.

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