USD/CAD reached a five-month low of 1.3675 and remains under pressure, trading around 1.3680. A bullish descending wedge pattern suggests a potential upside breakout, though it remains below key EMAs, supporting a bearish outlook.
The 14-day RSI is at 26.38, in oversold territory, and still decreasing, reinforcing negative momentum. RSI levels below 30 indicate stretched conditions, yet sellers dominate unless the price surpasses short-term indicators.
Conversion Levels
The pair risks slipping further below the wedge around 1.3650, potentially pushing it to the low of 1.3539 seen in October 2024. Conversely, a rebound could aim for the nine-day EMA at 1.3754 and possibly the 50-day EMA at 1.3894, with resistance at 1.4014.
Canadian Dollar has shown various changes against major currencies, with the CAD being the strongest against the USD. Changes include USD experiencing a -0.03% change, and CAD itself moving -0.23% against JPY, -0.16% against AUD, and a slight improvement against other currencies.
We see USD/CAD testing five-month lows around 1.3680, driven by a bearish momentum that has persisted for three straight days. This weakness in the US dollar against the loonie is supported by strong WTI crude oil prices, which have recently climbed back above $95 per barrel for the first time since the volatility of late 2024. The fundamental support for a stronger Canadian dollar appears to be in place.
While the 14-day RSI is deep in oversold territory at 26.38, selling pressure continues to dominate the pair. This reflects the different paths of our central banks, as the Bank of Canada held its key rate at 3.0% earlier this month while markets increasingly price in a Federal Reserve rate cut in the first quarter of 2026, especially after last week’s soft US CPI report. For now, momentum remains with those who are shorting the pair.
Investment Strategies
For those expecting this bearish trend to continue, buying put options or establishing short positions with a stop-loss above the 1.3760 resistance seems prudent. A break below the immediate 1.3650 support level could accelerate the decline, targeting the lows we saw back in October 2024 around 1.3539. This strategy follows the current, powerful downward momentum.
However, we must not ignore the bullish descending wedge pattern forming on the daily chart, which suggests this downward move could be nearing exhaustion. A contrarian strategy would involve buying call options with strikes above 1.3800, anticipating a potential breakout above the 1.3760 resistance zone. Historically, such deeply oversold conditions combined with a bullish reversal pattern have preceded sharp upward corrections.
Given these conflicting technical and fundamental signals, an increase in volatility is likely as we head into the new year. A market-neutral strategy, such as a long straddle, could be effective, using options to profit from a significant price move in either direction. This approach allows us to capitalize on a breakout from the current tight range without having to predict its direction perfectly.
