Go short on USDCAD as dollar index hits three-month lows

It's been a volatile week for USDCAD. The pair is treading water near 1.37600, recovering from earlier losses amid a surge in the Canadian dollar. What triggered the greenback's sell-off? A bombshell from the American Treasury Department: a decision to double its long-term bond purchases, which sent shock waves through the debt market. Investors, already anxious about ballooning government debt, saw this as a red flag, causing the dollar index (DXY) to plummet to a three-month low.

By contrast, the loonie got a welcome boost from the latest inflation data in the Great White North. The headline Consumer Price Index (CPI) accelerated to 3% year‑on‑year, edging past the 2.9% consensus forecast and bumping against the upper boundary of the Bank of Canada's target range. While much of the spike can be traced to higher gasoline prices, the print still leaves less room for the regulator to cut interest rates aggressively. Core inflation, however, is anchored around 2%, so traders are still betting on the BoC holding borrowing costs at 2.25% through year‑end. 

Across the border, the picture is more nuanced. The July Federal Reserve (Fed) meeting minutes revealed a growing unease about the CPI, with several policymakers floating the idea of a September rate hike. But the soft labor market and consumer data are pulling in the opposite direction, limiting the central bank's ability to maneuver. Add to that the growing jitters over US debt sustainability, and the greenback is caught in a perfect storm. The result? The dollar index has shed roughly 1% this week and is flirting with three‑month lows.

So, what do the charts say? Technically, USDCAD shows little sign of leaving bearish territory. The pair has tumbled about 4% over the last 14 days, with no convincing reversal signals in sight. Sellers keep dictating the pace. Until it can establish a stable base and reclaim lost barriers, the path of least resistance still points lower.

The final recommendation:

— Sell the USDCAD pair at the current price (1.37600), aiming to reach 1.35500 within one month.

— To shield your position from adverse market movements, place a Stop Loss order at 1.39000.