USD/CAD Daily Forecast – Canadian Dollar Continues Its Upside Move

USD/CAD Video 08.05.20.

U.S. Employment Reports Provide Support For Riskier Assets

USD/CAD continues to trend down as oil shows strength and the U.S. dollar is losing ground against a broad basket of currencies.

The better-than-expected U.S. Non Farm Payrolls and Unemployment Rate reports have initially provided support to the American currency, but the U.S. Dollar Index failed to get above the 100 level and declined closer to 99.5.

The reports showed that job losses were smaller than previously expected, although the U.S. economy still lost as much as 20.5 million jobs and the Unemployment Rate skyrocketed to 14.7% as virus containment measures dealt a heavy blow to many industries.

However, the market got accustomed to worse-than-expected reports so the news was considered as a positive catalyst and led to increased buying of riskier assets like the Canadian dollar.

Oil continues to be a tailwind for the Canadian currency as traders believe that the worst is already behind and that the reopening of the world economy will improve the supply/demand balance in the oil market.

Other commodity-related currencies are also gaining ground against the U.S. dollar today highlighting the breadth of the current move.

Technical Analysis

USD/CAD has breached the 50 EMA level at 1.3970 and heads towards the next support level which is located at 1.3850.

This level has previously been tested two times and USD/CAD swiftly rebounded after each attempt to get below this level. This time, USD/CAD should have more chances to settle below 1.3850 but I believe that some stabilization closer to this level could be required for a successful test of this major support.

In case USD/CAD manages to get below 1.3850, it will likely gain additional downside momentum and head towards 1.3750.

On the upside, the 50 EMA at 1.3970 will likely serve as the first resistance level for USD/CAD. If the pair manages to get above this level, it will have to deal with resistance at the 20 EMA at 1.4040.

The following resistance level is located at 1.4150, at the recent highs, while the ultimate resistance for the pair is at 1.4250. From a big picture point of view, USD/CAD continues to trade in a wide range between 1.3850 and 1.4250. At this point, a downside breakout looks more likely.