USD/CAD remained under pressure on Monday even as the US Dollar steadied after last week’s decline following softer US Nonfarm Payrolls data, with attention shifting to Wednesday’s US Consumer Price Index release. The pair was trading near 1.3932, close to a two-month low. The Canadian Dollar found support from stronger domestic labour data and firmer oil, with West Texas Intermediate at $80.37 a barrel, up 5.20% on the day.
The move has kept focus on Federal Reserve pricing and incoming inflation data after USD/CAD slipped below 1.40. Technically, the pair has posted lower highs and lower lows since a brief push above 1.4200 in late June, and it remains below the 1.4000 threshold and the 50-day Simple Moving Average at 1.4075. Momentum gauges were still soft, with the Relative Strength Index near 33 and the Moving Average Convergence Divergence in negative territory; support sits at the 100-day SMA near 1.3916 and then the 200-day SMA around 1.3853, while resistance is seen at 1.4000 and 1.4075.
Bearish Tactical Opportunities For USD/CAD
We see USD/CAD dipping below the critical 1.4000 threshold, presenting a tactical window for derivative traders ahead of Wednesday’s US CPI print. With the pair trading near a two-month low of 1.3932, the short-term momentum clearly favors the Canadian dollar. To capitalize on this, we recommend leaning into short-dated bearish options to exploit further downside before the market finds a firm floor.
This bearish USD/CAD outlook is supported by strong Canadian labor data and WTI crude oil surging over 5% to $80.37 a barrel. Historically, a sustained rise in oil prices boosts the commodity-linked Loonie, especially when Canadian employment figures beat expectations. We suggest looking at near-the-money put options targeting the 100-day moving average of 1.3916.
Risk Management And Trade Structuring
We must remain cautious of the upcoming US inflation data, as an unexpected rise in CPI could quickly push USD/CAD back above the 1.4000 mark. Currently, USD/CAD one-month implied volatility is trading at a relatively low 5.8%, making option premiums attractive for buyers. We favor deploying bear put spreads, which limit our premium risk while allowing us to profit if the pair slides toward the 200-day moving average near 1.3853.
Since the Relative Strength Index is sitting low at 33, the market is approaching oversold territory, meaning we should avoid chasing the downward trend blindly. If the 1.3916 support holds, we expect a brief bounce back toward the 50-day moving average at 1.4075. We are structuring our trades with tight stop-losses and using barrier options to protect our capital against a sudden trend reversal.
