USD/CAD Daily Forecast – Canadian Dollar Declines Amid Sell-Off In Global Markets

USD/CAD Video 01.05.20.

U.S. Dollar Gains Ground Following U.S. Threat To Impose Tariffs On China

USD/CAD is rebounding following the unsuccessful attempt to break through the support level at 1.3850.

Today, the trading in the world markets is heavily influenced by the U.S. threat to put more tariffs on China due to the latter’s failure to contain coronavirus and provide timely information on the disease.

Despite the sell-off in the world markets, the U.S. dollar remained mostly flat against a broad basket of currencies, and the U.S. Dollar Index settled below 99. Oil was mixed and did not provide additional support for the Canadian dollar.

The U.S. released ISM Manufacturing PMI for April which came at 41.5 compared to analyst consensus of 36.9. The Canadian Markit Manufacturing PMI for April was 33. Both reports are not surprising as coronavirus containment measures put huge pressure on every country where they were implemented.

While the U.S. dollar is flat against a basket of currencies, it is gaining ground against more risky currencies like the Canadian dollar, Australian dollar or New Zealand dollar while losing ground against euro or Swiss frank. Most likely, the commodity-related currencies got hit because additional tariffs may put pressure on China’s demand for commodities.

Technical Analysis

USD/CAD rebounded from the support level at 1.3850, breached the 50 EMA at 1.3950 and also breached the 20 EMA at 1.4040. At this point, the next major resistance level for USD/CAD is 1.4250, although I’d expect that the pair will also face resistance at 1.4120.

The main intrigue right now is whether USD/CAD is ready for a test of the strong resistance level at 1.4250. This level has already been tested many times and USD/CAD managed to get above it for a short period of time but then quickly dropped below 1.4250.

I maintain my view that USD/CAD will need strong catalysts to settle above this level. If it happens, the pair will quickly get to the test of the next resistance level at 1.4330.

On the support side, the 20 EMA level at 1.4040 will likely serve as the first support, followed by support at the 50 EMA level at 1.3950.

For now, the pair has settled in a wide range between support at 1.3850 and resistance at 1.4250.