USD/CAD Daily Forecast – Stronger Oil Supports The Canadian Dollar

USD/CAD Video 12.05.20.

U.S. Dollar Loses Ground As Demand For Safe Haven Assets Decreases

USD/CAD fell closer to 1.4000 as the U.S dollar lost ground against a broad basket of currencies and oil prices increased following the decision of UAE and Kuwait to make additional production cuts.

The U.S. Dollar Index fell below the 100 level as the demand for safe haven assets decreased. The U.S. Dollar Index continues to stay range-bound between 99 and 101, and a move out of this range will lead to increased momentum in USD/CAD.

The U.S. has recently published inflation data for April. Both the Core Inflation Rate and the Inflation Rate went into the negative territory on a month-over-month basis.

It remains to be seen whether the markets will see this as a one-time event or if deflation fears will start to impact trading.

Meanwhile, the U.S. Federal Reserve decided to buy ETFs that invest in corporate debt. The unlimited support provided by the Fed is a bearish factor for the U.S. dollar.

However, the Fed has also provided rather bullish comments as its officials have several times reiterated that they did not want to take interest rates into the negative territory.

Previously, the U.S. dollar had a yield advantage over its major counterparts but now that almost everyone has cut the rates close to the zero mark, this advantage is gone and the main factor supporting the U.S. dollar is its safe haven status.

Technical Analysis

USD/CAD faced resistance at 1.4060 and pulled back closer to 1.4000. The first support level for the pair is located at the 50 EMA at 1.3970.

In case this support level is breached to the downside, USD/CAD will head towards the major support level at 1.3850, although it may also have support near the recent lows at 1.3900.

On the upside, the first resistance level for USD/CAD is located at 1.4060, followed by the resistance level at 1.4150. At this point, each attempt to rebound is met by resistance at a lower level, which is a bearish sign for USD/CAD although things may change quickly in the current volatile environment.

The pair has already made several attempts to test the support level at 1.3850, and it will likely need to first settle closer to this level to have a realistic chance to go lower.