Plans to reopen the U.S. economy and hopes for a cure from coronavirus serve as bearish catalysts for the U.S. dollar.
The U.S. dollar weakened against the Canadian dollar as the market expressed optimism about the three-stage plan to reopen the U.S. economy.
Another good news was that Gilead’s drug remdesivir showed promising results in treating coronavirus patients, although the sample of such patients was small. Together, these news boosted riskier assets and put pressure on safe haven assets like the U.S. dollar.
The U.S. Dollar Index, which measures the U.S. dollar strength against a broad basket of currencies, settled below 100 as traders favored riskier currencies.
The economic calendar was light today, and there were no notable reports. The next Monday will also be light on the economic data side. Canada will report Wholesale Sales for February, which are of limited interest because the real hit to the economy happened in March.
In the U.S., Chicago Fed National Activity Index will be released. Both reports are unlikely to have a major impact on the trading action in USD/CAD.
Instead, traders will likely focus on whether risk appetite will continue to increase, putting additional pressure on the U.S. dollar. Also, oil price dynamics may have a material impact as WTI oil traders switch from May 2020 contract to June 2020 contract.
The Canadian oil is priced at a significant discount to WTI oil, and additional downside in WTI oil can put major pressure on the Canadian currency.
USD/CAD continues to pull back following the rapid upside move that happened several days ago, when the market was worried about poor U.S. economic data and safe haven assets like the U.S. dollar got a boost.
Currently, the pair is trading near the 20 EMA level at 1.4030 which serves as the first material support level for USD/CAD. In case this level is breached to the downside, the pair will head towards the next support level at the 50 EMA at 1.3880.
On the upside, the nearest major resistance level is located at 1.4250. However, I’d note that the recent highs below 1.4200 may also be an obstacle on USD/CAD way to the upside.
Currently, it looks like the previous one-day upside move did not change the local trend for USD/CAD, and the pair continues to go down in a broad downside channel.
Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.