The USD/CAD pair faced resistance near the trendline at 1.4150, resulting in a strong reversal. It fell below the ascending channel and the 200-day moving average, suggesting potential further declines.
There is a temporary rebound, but if the pair fails to reclaim the 200-day moving average around 1.3910, a deeper decline may occur. The next targets are the September lows at 1.3770/1.3725 and subsequently 1.3660.
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We’ve seen a sharp pullback in USD/CAD after it failed to break the multi-month resistance near 1.4150. The pair has now slipped below its 200-day moving average, a technically significant signal for traders. This move suggests the recent uptrend has lost its momentum and a deeper correction may be starting.
Federal Reserve Versus Bank Of Canada
The Federal Reserve is expected to cut rates this week, especially after last week’s US CPI print showed inflation cooling to 2.9%. In contrast, the Bank of Canada is likely to hold its rate steady, supported by a surprisingly strong Canadian jobs report that added 45,000 positions in November. This growing policy divergence heavily favors the Canadian dollar over the US dollar.
For derivative traders, this setup points towards strategies that benefit from a falling USD/CAD. We are looking at buying put options with strike prices near the September lows of 1.3770, anticipating the pair will test these levels in the coming weeks. Any failure for the pair to climb back above the 1.3910 mark would reinforce this bearish outlook.
This situation is reminiscent of the divergence we saw back in 2023, when the Bank of Canada paused its rate hikes before the Fed, causing significant strength in the loonie. The broad market weakness in the US dollar, which has seen EUR/USD push toward 1.1650, provides further confirmation for our view. This is not just a CAD story; it is also a weak dollar story.
