USD/CAD Video 20.05.20.
U.S. Dollar Weakness And Stronger Oil Push USD/CAD To The Downside
USD/CAD continues its attempts to get through the support level at 1.3850 as the U.S. dollar loses ground against a broad basket of currencies.
The U.S. Dollar Index, which has been in a range between 99 and 101 since early April, is currently located at the low end of this range as global market optimism leads to reduced demand for safe haven assets.
Interestingly, the Canadian dollar ignored inflation data which showed that prices were under pressure due to weaker demand and virus-related restrictions.
In April, Inflation Rate was -0.2% year-over year and -0.7% month-over-month. Prices decreased more than analysts expected. I’d note that short-term deflation is seen in many developed countries, and the key question is whether massive monetary stimulus could quickly get prices back to the upside trend.
Oil price upside is serving as additional supportive factor for the Canadian dollar as oil continues its rally following the release of EIA Weekly Petroleum Status report which showed that crude inventories declined by 5 million barrels.
At this point, traders believe that the worst is over for the oil market, and Canadian oil benchmarks are enjoying material upside.
USD/CAD has already made a number of attempts to get below the key support level at 1.3850. Early attempts ended with robust rebounds which took the pair above 1.4100.
However, the downside pressure increases, and the current attempt has better chances to succeed, especially in case the U.S. Dollar Index dives below 99 or we see additional upside in the oil market.
In case USD/CAD settles below 1.3850, it will gain additional downside momentum and head towards the next support level at 1.3750. Given the time that USD/CAD has spent in the range between 1.3850 and 1.4250, the downside move may be very fast.
On the upside, the pair will need to settle back above 1.3900 to get a chance to test the next resistance level at the fifty ema at 1.3980. In case USD/CAD manages to get above the 50 EMA, it will gain upside momentum and head towards the next resistance level at the 20 EMA at 1.4020.