The USDCAD pair experienced modest gains following a rate cut by the Bank of Canada, which reduced rates by 25 basis points. The initial reaction saw the pair rise beyond its 100-day moving average, reaching a session high of 1.3769 before momentum waned.
Subsequently, the pair fell below the 100-day moving average, now trading at 1.3758. It re-entered a swing area between 1.37437 and 1.3759, with further decline potentially targeting the session low of 1.3738, aligning with a head-and-shoulders neckline. Below this, 1.3721, the August 7 low, serves as the next target.
Importance Of Technical Levels
For sellers, maintaining the price below the 100-day moving average would be advantageous. If the pair manages to climb and sustain trading above this level, it could aim for the converged 100- and 200-hour moving averages at 1.3802 as a focal point for further gains.
These technical levels offer important insights into potential support and resistance, shaping the next moves for the USDCAD pair. The outlook remains dependent on whether the pair maintains its current position or manages a sustained push above these averages.
We recall the Bank of Canada’s rate cut earlier in the summer, which caused the initial spike in USDCAD above the 100-day moving average. The market’s inability to hold those gains showed significant indecision. That indecision continues today as the pair hovers around that same key technical level.
Fundamental Picture And Option Strategies
The fundamental picture has become clearer since that rate decision, favouring a stronger U.S. dollar. We’ve seen U.S. core inflation remain stubbornly above 3.1% through August 2025, while Canadian CPI has trended lower, hitting 2.4% last month. This policy divergence, with the Federal Reserve holding firm, supports a long-term upward path for the pair.
For those expecting a breakout to the upside, buying call options with a strike price near the 1.3800 level could be a viable strategy. This allows traders to capitalize on a move toward the old 200-hour moving average target with a defined risk. The recent August 2025 U.S. jobs report, which showed a solid gain of 215,000 jobs, adds credibility to this bullish outlook.
Conversely, if the pair decisively breaks below the 1.3743 swing area, it signals that sellers are regaining control despite the fundamentals. In this scenario, purchasing put options with a strike around 1.3720 would protect against or profit from a slide toward the August lows. This acknowledges the technical weakness shown by the failure at the 100-day moving average.
Given the price is coiling tightly, we could also consider volatility strategies. A long straddle, involving the purchase of both a call and a put option at the current price, would profit from a significant price move in either direction. This is a way to trade the market’s current uncertainty without having to predict the direction of the eventual breakout.
Ultimately, our short-term derivative positioning should be dictated by the 100-day moving average, currently near 1.3760. A sustained move above this level warrants adding bullish exposure. A firm rejection from this point would be our cue to prepare for a test of lower support levels.
