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Vladimir Zernov
USD/CAD

USD/CAD Video 13.05.20.

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The U.S. Fed Is Not Thinking About Negative Rates

USD/CAD continues its rebound from the major support level at 1.3850. Today, the U.S. dollar got a boost from the U.S. Federal Reserve Chair Jerome Powell who stated that negative interest rates were not a tool in the Fed’s current toolbox.

Earlier, traders were starting to place bets on the possibility of negative interest rate policy in the U.S. Currently, the U.S. dollar is supported by its safe haven status, but the adoption of negative interest rates may have put yields in focus and lead to weakness of the American currency.

The U.S. Dollar Index, which has been below the 100 level ahead of the Powell speech, returned back above 100, highlighting the U.S. dollar strength against a broad basket of currencies.

A surprising decline in U.S. oil inventories did not provide much support for oil prices so the Canadian dollar did not get a boost from the oil market side.

Meanwhile, it looks like deflation is the new near-term reality for developed economies since various economic reports show that prices were decreasing in April.

For example, the latest U.S. PPI report showed that producer prices declined by 1.3% in April, while the previously released Inflation Rate was -0.8% month-over-month.

Technical Analysis

USD/CAD has breached the 50 EMA level at 1.3980 and the 20 EMA level at 1.4040 and continues to go higher boosted by Fed’s comments about negative interest rates.

The next resistance for USD/CAD is located at the highs of the previous rebound at 1.4150. If this resistance level is breached to the upside, USD/CAD may gain additional upside momentum and head towards the test of the major resistance level at 1.4250.

I continue to believe that the pair will need significant catalysts to get above 1.4250. Such catalysts may include an unexpected decline in the price of oil (bearish for the Canadian dollar) or a general sell-off in the global markets (bullish for the U.S. dollar).

On the support side, the nearest support level is located at the 50 EMA at 1.3980. In case this level is breached to the downside, the pair will once again head towards the major support level at 1.3850.

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