Insights 
VT 
USD/CAD hovers around 1.3950, near the lower boundary of its ascending channel, as it remains subdued for the second day in a row during European trading hours. On the daily chart, the bullish bias appears to be weakening as the pair attempts to dip below the ascending pattern.
The 14-day Relative Strength Index remains above 50, indicating an ongoing upward bias. USD/CAD trades above the nine-day Exponential Moving Average, suggesting continued short-term price momentum.
Six Month High
If the pair rebounds within the channel, it could aim for the six-month high of 1.4016, previously hit on May 13. Surpassing this would bring the upper boundary target around 1.4110 into play.
Downside support for USD/CAD starts at the nine-day EMA of 1.3925. Dropping below this level could lessen short-term price momentum, triggering potential downward movement around the 50-day EMA at 1.3828.
The Canadian Dollar showed a varied performance, strengthening most against the Euro. Exchange rate changes were recorded as follows: USD gained 0.59% against EUR, while CAD remained level with USD. In contrast, CAD gained 0.62% against the Euro and displayed a 0.10% increase against GBP.
Critical Point
The USD/CAD pair is trading near 1.3950, a critical point that tests the lower boundary of its recent upward channel. We see the bullish momentum weakening, suggesting a potential shift in the coming weeks. This creates opportunities for traders who are prepared for a move in either direction.
Given that the Relative Strength Index is still above 50, a rebound is possible, which could see the pair target the 1.4016 high from back in May 2025. Traders anticipating this bounce might consider buying call options with a strike price around 1.4000. This strategy offers a defined risk if the pair fails to rally and breaks lower instead.
However, the risk of a breakdown is increasing, especially after the latest U.S. Non-Farm Payrolls report on Friday showed job growth slowing to 155,000, missing expectations. A break below the 1.3925 level could signal a deeper move toward the 1.3828 support area. In this scenario, purchasing put options could protect against a decline or be used to speculate on further downside.
Uncertainty around the Federal Reserve’s next move is likely to increase volatility. We saw similar indecision back in late 2024, which led to sharp price swings in the currency pair. Traders could use straddles or strangles to position for a significant price move, regardless of the direction.
We should also watch oil prices and Canadian inflation data for clues. With West Texas Intermediate crude holding steady above $85 per barrel and Canada’s latest inflation reading remaining stubbornly high at 2.9%, the Bank of Canada has little reason to cut rates. This divergence in economic data could favor the Canadian dollar if U.S. economic strength continues to wane.
