USD/CAD Daily Forecast – Canadian Dollar Rallies Against The U.S. DollarWidespread market optimism pushes the pair through the 1.4330 support level and quickly takes it closer to 1.4000.
Market Optimism Lifts The Canadian Dollar
USD/CAD breached the 1.4330 support level and quickly moved closer to the 1.4000, supported by broad U.S. dollar weakness. The U.S. Dollar Index corrected from 104 to 100 in a matter of several days, so many currencies have experienced material upside against the U.S. dollar.
Many asset classes are in rally mode today despite the negative surprise from the U.S. Initial Jobless Claims data, which showed that 3.3. million Americans applied for unemployment benefits.
The Canadian dollar is a major beneficiary of this renewed optimism and rallies despite continued weakness on the oil price front. At this point, oil is one of the major potential downside catalysts for the Canadian dollar since oil failed to show upside at times of widespread market optimism, highlighting its underlying weakness.
It remains to be seen how long the current market optimism will last since the upcoming economic data is set to be even worse than today’s Initial Jobless Claims since the U.S. has only recently implemented serious coronavirus containment measures.
The potential pause in the current market rally is another risk for the Canadian dollar which clearly benefits from the risk-on mode in the markets.
USD/CAD is making a major move right now due to the risk-on mode in the markets. The nearest support level for USD/CAD is at 20 EMA at 1.4030. While this level can be breached in the near term, it will be hard for the pair to settle below the 20 EMA without any correction since the move to the downside was so fast.
On the resistance side, the previous major support level at 1.4330 has now turned into a material resistance level. On the way up, USD/CAD will also have to deal with a minor resitance near 1.4150, although it remains to be seen whether this level will emerge as a material obstacle since USD/CAD has almost ignored it during the recent move down.
To continue the current move, USD/CAD will need additional broad downside in the U.S. dollar and no near-term downside breakout in the oil market. In my opinion, the oil market is currently presenting the biggest potential near-term risk for the Canadian dollar, since oil is looking both technically and fundamentally weak.