USD/CAD stayed lower in early European trade on Wednesday, holding just above the mid-1.3500s and down nearly 0.15% on the day. It remained close to a near one-month low reached on Monday and appeared open to further falls. The US Dollar faced selling as markets priced in the chance of US rate cuts, with lower crude oil prices seen as less of a constraint on Federal Reserve policy. Another drop in crude oil, which can weaken demand for the Canadian dollar, did not prevent USD/CAD from moving down.

Technical Signals Point Lower

Price action showed a break below a short-term range and sustained trade under the 100-period Simple Moving Average (SMA). The Relative Strength Index sat in the low-40s, pointing to mild downside pressure rather than an oversold reading. The MACD line stayed slightly above its Signal line but near zero, suggesting weak momentum. On the 4-hour chart, the pair remained below a gently falling 100-period SMA near 1.3657, limiting rebounds. Resistance levels were noted at 1.3600, then 1.3657, and 1.3690. Support was at 1.3540, with 1.3500 next if 1.3540 breaks, while a move above 1.3657 would reduce the bearish bias. Given the current weakness in the USD/CAD pair, derivative traders should consider strategies that benefit from further downside. The pair is currently struggling just above the 1.3550 mark, and the fundamental backdrop supports a continued decline. With the recent US February CPI print coming in at a milder-than-expected 2.8%, the market is pricing in a higher probability of a Federal Reserve rate cut this summer. This outlook is reinforced by the stabilization of energy markets, which contrasts sharply with the volatility we saw last year. WTI crude has been holding steady around the $75 per barrel mark, removing a key inflationary pressure that previously concerned the Fed. This gives the central bank more leeway to ease policy, putting downward pressure on the US Dollar that is overpowering any weakness in the commodity-linked loonie.

Options Strategy For Further Downside

We remember how in mid-2025, oil prices spiking to over $90 a barrel created significant headwinds for any policy easing, a factor that is now absent. The technical picture aligns with this bearish sentiment, as the pair has broken below key moving averages. This suggests that the path of least resistance is lower for the USD/CAD in the coming weeks. Considering this, buying put options with a strike price around 1.3500 could be an effective way to position for a drop. The immediate support level is seen at 1.3540, and a convincing break below that would open the door to our target. This strategy allows for participation in the downward move while clearly defining the maximum risk. However, we must remain disciplined and manage the risk of this bearish view. A sustained move back above the 1.3657 area would signal that the downward momentum has faded and would serve as our key level to reconsider bearish positions. This level acted as a strong technical cap and would need to be breached to shift the near-term outlook. Create your live VT Markets account and start trading now.

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