USD/CAD has fallen to a five-month low of 1.3675 and is currently trading around 1.3680. A bullish descending wedge pattern hints at a possible upward breakout, but the pair remains below key EMAs, indicating a bearish trend.
The 14-day RSI is at 26.38, which is oversold and still declining, suggesting strong negative momentum. RSI levels under 30 show stretched conditions, yet sellers are still in control unless the price breaks above short-term indicators.
Conversion Levels
The pair could drop further below the wedge around 1.3650, potentially reaching the low of 1.3539 from October 2024. On the other hand, a rebound might target the nine-day EMA at 1.3754 and possibly the 50-day EMA at 1.3894, with resistance at 1.4014.
The Canadian Dollar (CAD) has fluctuated against major currencies, showing strength against the USD. The USD has seen a -0.03% change, while the CAD moved -0.23% against JPY, -0.16% against AUD, and experienced minor changes against other currencies.
Currently, USD/CAD is testing five-month lows around 1.3680, driven by bearish momentum for three straight days. This weakness in the US dollar, or loonie, is supported by strong WTI crude oil prices, which have recently gone back above $95 per barrel for the first time since late 2024’s volatility. This indicates strong fundamental support for the Canadian dollar.
With the 14-day RSI deep in oversold territory at 26.38, selling pressure remains dominant. This reflects the differing paths of our central banks: the Bank of Canada kept its key rate at 3.0% earlier this month, while markets expect a Federal Reserve rate cut in early 2026, especially after a soft US CPI report last week. For now, those betting against the pair hold the advantage.
Investment Strategies
For those who believe this bearish trend will continue, buying put options or taking short positions with a stop-loss above the 1.3760 resistance looks wise. A break below the immediate support level of 1.3650 could speed up the decline, targeting the lows of 1.3539 we saw in October 2024, following the current strong downward trend.
However, it’s important to note the bullish descending wedge pattern on the daily chart, suggesting the downward move might be nearing its end. A contrarian approach would be to buy call options with strike prices above 1.3800, expecting a breakout above the 1.3760 resistance area. Historically, such deeply oversold conditions paired with a bullish reversal pattern have led to sharp upward corrections.
Given the mixed technical and fundamental signals, increased volatility is likely as we approach the new year. A market-neutral strategy, like a long straddle, could work well, using options to profit from a significant price movement in either direction. This tactic lets us take advantage of a breakout from the current tight range without needing to predict its direction precisely.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
