USD/CAD Daily Forecast – Strong Oil Boosts Canadian Dollar

USD/CAD Video 05.05.20.

Canadian Dollar Gains Ground On A Strong Day For The U.S. Dollar

USD/CAD is in a pullback mode despite the broad U.S. dollar strength as it is offset by a major rally in the oil market. The Canadian oil is enjoying an especially strong boost due oil sands production cuts.

The U.S. Dollar Index has enjoyed upside today despite the general market optimism and is located close to the 100 level.

Traders have recently had a chance to evaluate Markit Composite PMI Final and Markit Services PMI Final which came below expectations at 27.0 and 26.7 respectively.

PMI data highlights a big blow to the economy and supports the U.S. dollar which serves as the safe haven asset of last resort during the current crisis.

Interestingly, oil, equity markets and the U.S. dollar enjoy upside on the same day, although in USD/CAD case the broad U.S. dollar upside does not help because of the notable gains on the oil price front.

In my opinion, the recent market action highlights traders’ confusion about the future economic situation since the safe haven asset like the U.S. dollar and the riskier assets like stocks or commodity-related currencies are enjoying upside on the same day.

Technical Analysis

USD/CAD continues to trade in a wide range between the major support level at 1.3850 and the major resistance level at 1.4250. At the same time, a pattern of lower highs has been formed, and the pair is currently trending down in a wide downside channel.

The nearest material support level for USD/CAD is located at the 50 EMA at 1.3965, although the pair may get some support near 1.4000. If USD/CAD settles below the 50 EMA, it will head towards the major support level at 1.3850 which has already been tested two times.

Previously, USD/CAD quickly rebounded from 1.3850 but the third test could have more chances to succeed.

On the upside, the nearest material resistance is located at the recent highs at 1.4150. If USD/CAD is able to get above this level, it will move towards the test of the major resistance level at 1.4250. I maintain my view that USD/CAD will need very strong catalysts to get above the resistance at 1.4250.