USD/CAD drifted lower on Tuesday as the Canadian Dollar found support from a weaker US Dollar, while markets weighed fresh retaliatory trade measures between the US and Canada. The pair traded around 1.3834 after easing from an intraday high of 1.3867. Canada said it will impose retaliatory tariffs on C$27.6bn of US goods, with duties of 15% to 50% covering roughly 700 products from 8 September. The move followed a US decision to apply 50% tariffs on a similar value of Canadian imports after talks broke down, while the US Treasury’s plan to increase buybacks of longer-dated government securities added to pressure on the Greenback.
Technically, USD/CAD remains capped below the 200-day SMA at 1.3843, with further resistance at the 50.0% Fibonacci retracement at 1.3887 and the 100-day SMA at 1.3914. Above that sit the 38.2% retracement at 1.3971, the 50-day SMA at 1.4057 and the 23.6% retracement at 1.4075. Momentum gauges show RSI near 37 and MACD negative, while ADX is 35; support is seen at the 61.8% retracement near 1.3803, then 1.3684 and 1.3531. A daily close back above 1.3843 and then 1.3887 would ease downside pressure and point to the mid-1.39s.
Outlook For Derivative Traders Amid Escalating Trade Tensions
We believe derivative traders should prepare for a continued downward move in the USD/CAD pair over the coming weeks as trade tensions escalate. The announcement of Canada’s C$27.6 billion retaliatory tariffs starting September 8 is poised to inject significant volatility into the currency market. Historically, trade disputes between these close partners, such as the 2018 tariff battles, have sparked rapid 2% to 4% swings in the exchange rate.
Strategy Recommendations And Technical Support
Given this bearish setup, we recommend buying short-term put options on USD/CAD targeting the immediate support level at 1.3803. For a lower-cost strategy, traders can utilize bear put spreads to capture a potential slide toward the 1.3684 level. Selling call options above the 200-day Simple Moving Average of 1.3843 also offers a way to collect premium while the downward trend persists.
Our outlook is heavily supported by technical indicators showing that sellers are currently in control of the market. With the Relative Strength Index hovering near 37 and a strong trend confirmed by an Average Directional Index of 35, the path of least resistance is lower. As long as the pair remains below the key 1.3843 pivot, we expect rallying attempts to be met with aggressive selling.
Furthermore, we must account for broader US Dollar weakness driven by the US Treasury’s plans to increase buybacks of longer-dated government securities. This move has historically diluted the Greenback’s strength, adding fundamental pressure to our technical bearish view. However, we advise keeping position sizes managed, as any sudden shift in trade negotiations before September 8 could trigger a sharp squeeze.
