The USDCAD is currently finding support between 1.3808 and 1.3831, with buyers regularly stepping in within this range. The 100-hour moving average, located at 1.38579, has been acting as resistance, stopping recent gains. If the price falls below this support area, we could see a more bearish trend. Prime Minister Carey has lowered retaliatory tariffs, but this has not significantly affected the market. Bank of Canada Governor Tiff Macklem affirmed that the 2% inflation target will stay in place for the next policy review. He highlighted ongoing supply-side challenges that might increase inflation but noted the Bank’s ability to adapt through scenario analysis.

Market Caution And Uncertainty

The price movement of the USDCAD shows market caution and uncertainty. For a bullish trend to develop, the pair needs to stay above the 100-hour moving average, which could boost momentum. Traders are looking for a breakout to clarify the next trend for the USDCAD. The USDCAD is currently balanced between known support and resistance levels, reflecting the economic unpredictability expressed by the Bank of Canada. We observe that the USDCAD is tightly coiled around the 1.3830 level, with solid support below 1.3810 and resistance near the 100-hour moving average at 1.3858. This consolidation highlights the market’s indecision as it processes mixed signals. For now, the pair is waiting for a significant catalyst to prompt a breakout. The fundamentals suggest a slight strength for the Canadian dollar, which would push the pair lower. Canada’s latest consumer price index (CPI) for July 2025 came in at 2.9%, just above the expected 2.7%. This strengthens Governor Macklem’s cautious stance on inflation, leaving the Bank of Canada little room to ease policy anytime soon.

Recent US Data And Its Implications

Recent U.S. data shows signs of slowing, with weekly jobless claims rising to 245,000 and flat retail sales figures. This difference in economic momentum suggests that the Federal Reserve may be closer to easing policy than the Bank of Canada. Such a divergence usually results in a weaker U.S. dollar compared to the Canadian dollar. Adding to the current situation, WTI crude oil prices have stayed steady, retreating to $85 per barrel after a failed attempt to break the $90 resistance level earlier this month. Without a strong shift in energy prices, the Canadian dollar lacks a crucial driver to break the ongoing deadlock. This absence of a catalyst explains why USDCAD options volatility is near yearly lows. For derivative traders, this low volatility environment presents a chance to prepare for an upcoming breakout. Buying straddles or strangles with late September expirations allows us to profit from significant price movement in either direction. The current low options premium makes this an appealing strategy to capture the expected volatility increase. Given the current fundamentals, we believe a move lower is more likely. A decisive drop below the 1.3800 support area could lead to a quick test of the summer lows around 1.3720. Traders might consider buying put options or setting up bearish put spreads to manage risk. However, we should take into account the technical resistance that has held firm throughout the week. A surprising headline or strong U.S. data could easily push the pair above the 1.3860 resistance level. Such a break could trigger a sharp rally toward the 1.3977 high observed in April 2024, likely squeezing out short positions along the way. Create your live VT Markets account and start trading now.

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