USD/CAD Daily Forecast – U.S Dollar Breaks Through Imporant Resistance Level

There’s a lot of action in USD/CAD right now after the pair went through the 1.4000 level. Yesterday, I wrote that the successful test of this level will lead to a test of 2018 highs at 1.4135.

This level has also been reached, and right now USD/CAD trades above the 2018 highs. The U.S. dollar has been very strong today against a broad basket of currencies, and the U.S. Dollar Index is close to 100. Such levels haven’t been seen since mid-February.

While the U.S. dollar enjoys a boost from a major rush to safe haven assets, the Canadian dollar continues to suffer from the downside in the commodities markets. Oil tried to get some ground today but this attempt was unsuccessful, and the potential breach of the $28 level in oil presents an additional downside risk for the Canadian dollar.

Canada reported that manufacturing sales for January were down 0.2% while analysts estimated a larger decline of 0.5%. Meanwhile, retail sales in the U.S. were down 0.5%, a surprising decline compared to the analyst estimates which envisioned growth of 0.1%.

This portion of negative data pushed more traders into safe haven assets. Ironically, the bad data right now is positive for the U.S. dollar, even if this data comes from the U.S. economy.

Technical Analysis

USD/CAD has left the 1.3750 – 1.4000 range and continues its major upside move. The main worry for those long USD/CAD is that the U.S. Dollar Index has increased from 95 to 100 in a matter of few days and is becoming stretched.

The 100 level on the U.S. Dollar Index has served as a material resistance level back in 2015 and 2016, when brief excursions above this level were followed by significant sell-offs. The situation is extraordinary right now because of the coronavirus and the related flight to safety, but the resistance at the U.S. Dollar Index is something worth keeping in mind.

Previously, USD/CAD was at current levels back in 2016, when the sell-off in oil pushed the pair closer to 1.4700. That move happened a long time ago so there are no notable resistance levels right now, and traders should watch USD/CAD closely to see where the pair will face material selling pressure.