USD/CAD Daily Forecast – Continuation Of Oil Rally Boosts The Canadian Dollar

USD/CAD Video 23.04.20.

Bad Economic Data Does Not Hurt Market Optimism

USD/CAD fell below the 20 EMA at 1.4070 as rising oil and general market optimism boosted the Canadian dollar.

The market was able to ignore the poor U.S. Initial Jobless Claims And Flash PMI data. The Initial Jobless Claims report showed that 4.4 million of Americans filed for unemployment benefits, taking the total count of job losses since the beginning of the coronavirus crisis to almost 26.5 million.

U.S. Flash Composite PMI declined to 27.4 (numbers below 50 show contraction). Not surprisingly, the virus containment measures hit the services sector especially hard. Flash Services PMI declined to 27 compared to analyst consensus of 31.5, while Flash Manufacturing PMI declined to 36.9 compared to analyst consensus of 37.6.

New Home Sales fell by 15.4% in March as coronavirus put pressure on both the desire and the ability to purchase a new home. Obviously, an even worse report should be expected for the month of April.

Interestingly, the poor economic data put pressure on the U.S. dollar which is declining against a broad basket of currencies. The U.S. Dollar Index, which has recently tried to get closer to the 101 level, is falling towards the 100 level.

It looks like market participants believe that “bad news are good news” because they force the government and the Fed to expand their aid programs. It remains to be seen whether such trend could be sustainable in the longer run since the market will ultimately have to face the economic reality.

Technical Analysis

 

USD/CAD has breached the support level at the 20 EMA at 1.4070 and continues to trend lower. Currently, the pair is trying to get below the nearest support at the low of the recent pullback at 1.4000.

In case USD/CAD manages to settle below this support level, it will head towards the next support at the 50 EMA at 1.3930. If the test of this level is successful, the pair may revisit the recent lows at 1.3850.

On the upside, the resistance at 1.4250 remains the biggest obstacle on the way up. This resistance has already been tested many times, and each time USD/CAD failed to settle above it. Currently, it looks like the pair will need a strong catalyst like additional downside in oil or a major sell-off in the global markets to get above this level.