The USDCAD recently found support near a swing area and the 100-bar moving average, resulting in a modest bounce. This week, the currency pair has seen resistance between 1.38917 and 1.3804. Buyers have entered against the 100-bar moving average on the 4-hour chart at 1.38176.
Last week’s weaker job reports from Canada and the U.S. have led to expectations of potential rate cuts by the Fed and the Bank of Canada. Announcements are set for Wednesday, with the BoC decision at 9:45 AM ET and the FOMC at 2 PM ET.
Technical Stability and Resistance
The USDCAD is stable after initial declines were met with support at the 200-bar moving average on the 4-hour chart at 1.38048. The price subsequently rose to the lower boundary of a swing area, where resistance prevented further gains. The pair has since retreated, again testing the 100-bar moving average on the 4-hour chart at 1.38176.
The technical outlook identifies resistance at 1.38917-1.3904 and support at the 100-bar moving average. A breach below these averages could lead to a target of 1.37635, while an advance above 1.38917-1.3904 points to a potential rise to 1.39235. As support maintains, buyers hold a short-term advantage before upcoming central bank decisions.
We are watching USDCAD trade within a tight range defined by clear technical boundaries. Buyers are defending support at the moving averages around 1.3817, while sellers are capping rallies near the 1.3904 resistance area. This price compression suggests a significant move is building as we await a catalyst.
Interest Rate Decisions and Market Impact
The primary driver for the coming week will be the simultaneous interest rate decisions from the Bank of Canada and the U.S. Federal Reserve on Wednesday. Last week’s economic data gave us a clear signal, with U.S. non-farm payrolls coming in at a weaker-than-expected 110,000 and Canada reporting a surprise job loss of 5,000 positions. These figures have significantly increased the probability of coordinated rate cuts.
Given the uncertainty ahead of the announcements, we see value in using options to trade the expected spike in volatility. A long straddle, involving the purchase of both a call and a put option with a strike price near the current market level, could be an effective strategy. This position profits from a sharp price move in either direction, insulating a portfolio from picking the wrong side of the central bank decisions.
For directional traders using futures, the key is to wait for a confirmed breakout from the current range. A decisive close above 1.3904 would be our trigger to go long, targeting the August 2025 highs around 1.3923. Conversely, a break below the 1.3804 support level would open the door for short positions, with an initial target at the 100-day moving average near 1.3763.
We remember the aggressive hiking cycles of 2022 and 2023, and the Bank of Canada may now be under more pressure to cut rates due to weaker domestic data, such as the recent GDP figures from earlier this summer. If the BoC signals a more aggressive easing path than the Fed, it would provide strong upward momentum for USDCAD. This relative policy divergence will be the most important factor to watch on Wednesday.
