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Vladimir Zernov
USD/CAD

USD/CAD Video 01.06.20.

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Canadian Dollar Gains Ground Amid Demand For Riskier Currencies

USD/CAD gained downside momentum as the U.S. dollar continued to lose ground against a broad basket of currencies.

The U.S. Dollar Index is trying to settle below the 98 level as the American currency is under pressure amid increased demand for riskier assets.

The U.S. Manufacturing PMI increased to 39.8 in May compared to 36.1 in April.  Canada’s Manufacturing PMI also rebounded from 33 in April to 40.6 in May.

Numbers below 50 indicate contraction, but the rebound in PMI shows that economies are starting to recover from the acute phase of the coronavirus crisis.

Interestingly, the escalation of U.S. – China tensions and the protests in the U.S. did not lead to increased buying of the U.S. dollar despite the fact that both developments can potentially endanger recovery.

China has reportedly ordered its state-owned companies to stop purchases of certain U.S. agricultural products which were part of the trade deal with the U.S.

However, the world markets have managed to shrug off worries about the potential new round of trade war between the two biggest economies.

Instead, traders focused on the recovery from the coronavirus crisis, providing support to riskier currencies like the Canadian dollar.

Technical Analysis

USD/CAD breached the support level at 1.3730 and gained significant downside momentum amid increased demand for riskier currencies. At this point, the nearest support level for USD/CAD is located at 1.3570.

In case USD/CAD manages to settle below this support level, it will head towards the next support at 1.3500.

I’d note that RSI has not reached the oversold territory so the downside momentum may have more room to increase. At the same time, the current downside move is very significant so USD/CAD may likely need to go through a period of consolidation before it is able to move lower in case additional downside catalysts emerge.

On the upside, the previous support at 1.3730 has become the new resistance for USD/CAD. In case USD/CAD moves above this resistance level, it will head towards the next resistance level at 1.3800.

For a look at all of today’s economic events, check out our economic calendar.

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