The USDCAD has seen a significant rise, passing the 38.2% retracement level of the May decline at 1.37208. It also broke through an important price range between 1.37498 and 1.37590, getting close to the 50% retracement at 1.3777. However, the rally lost strength just below this target, stopping at 1.3774. Since then, the pair has dropped back, trading within the 1.37498–1.37590 range, suggesting that buyers are losing energy. If it falls below 1.37498, it may test the 38.2% retracement at 1.37208 and the rising 100-hour moving average around 1.3704. On the other hand, if it rises above 1.37590, attention will shift back to the 1.3777 target.

Momentum Indicator

With momentum slowing down, the swing area now acts as a short-term signal for whether the market is leaning bullish or bearish. The halt near the 50% retracement is a key point for traders. This pause isn’t surprising, given the diverging policies of the two central banks. Canada recently cut rates to 4.75%, while U.S. officials are maintaining a hawkish stance, suggesting only one rate cut in 2024. If the pair moves above 1.37590 again, it would signal that the market sees the U.S. economy as stronger. The recent U.S. jobs report showed an unexpected increase of 272,000 jobs, making it a good time to consider buying call options or bull call spreads to aim for higher resistance levels. Historically, significant policy differences have pushed the pair toward the 1.3900 level.

Trading Strategies

On the flip side, a clear drop below the 1.37498 mark could indicate traders are worried about the recent soft U.S. inflation data, which stood at 3.3%. This drop may also be driven by the strong crude oil market, with WTI trading over $80 a barrel, which typically supports the Canadian dollar. In this case, buying put options could be a smart move to take advantage of a potential slide toward the 100-hour moving average. Since the pair is currently within this swing area, we expect short-term volatility to rise. This uncertainty makes strategies like short straddles or strangles appealing for those anticipating a sharp breakout in either direction. For traders with a clear bias, it’s wise to use defined-risk strategies like spreads until a more definite trend emerges from this crucial zone. Create your live VT Markets account and start trading now.

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