The Canadian Dollar is stable against a stronger US Dollar. Strong employment figures in Canada late last year initially boosted its value. This led markets to reconsider the possibility of interest rate cuts by the Bank of Canada, even with ongoing concerns about the Federal Reserve. The Canadian Dollar gained against the US Dollar as short-term interest rate spreads narrowed late last year. Recently, the US Dollar has been resistant in the upper 1.38 range. This level includes a significant retracement from the USD decline seen in November-December, a notable low from late October, and the 100-week moving average.

USD Trend Momentum

Current trends indicate that the US Dollar might stay strong. There’s potential for it to reach the 1.3950/00 range. USD support remains solid at 1.3810/20. This article has updated earlier references regarding Canadian employment data for December to ensure accuracy. The FXStreet Insights Team gathers market insights from experts, including analysis from both inside and outside the organization. The positive jobs report from Canada is backing the Canadian Dollar. Statistics Canada reported a gain of 45,000 jobs in December, prompting us to rethink how soon the Bank of Canada will cut its 4.25% policy rate. At the same time, markets are still anticipating possible easing from the US Federal Reserve after last month’s core US CPI figures came in slightly lower than expected.

Strategies for Resistance Levels

As the US Dollar tests important resistance levels in the upper 1.38 range, traders should consider strategies that could benefit if this barrier holds. One option is to buy USD/CAD put options with a strike price around 1.3850 or set up bear call spreads to collect premium. This strategy is supported by technical barriers, including the challenging 100-week moving average. However, trend momentum indicates that the USD might remain strong and rise towards the 1.3950 level. For traders expecting a breakout, buying call options with a 1.3900 strike price offers a way to capitalize on a potential USD rise. This gain could be triggered by any signs of weakness in the Canadian economy or a hawkish stance from the Fed. With the exchange rate at such a crucial point, implied volatility might be undervalued as we approach next week’s inflation reports. A long straddle strategy—buying both a call and a put at the same strike price and expiration—could be wise. This strategy allows profit from significant price changes in either direction, leveraging the current uncertainty in the market. Fundamental factors from late 2025, like narrowing Canada-US interest rate spreads and stable WTI crude oil prices around $82 a barrel, support the Canadian Dollar. These elements suggest that a significant drop in the CAD is unlikely. Thus, if the USD/CAD pair approaches 1.4000, it could be seen as an overextension, presenting a potential selling opportunity. Create your live VT Markets account and start trading now.

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