A Combination Of Stronger U.S. Dollar And Weaker Oil Leads To Upside In USD/CAD
There’s an interesting situation in the markets today – the U.S. dollar is showing strength together with the U.S. stock market. Recently, the U.S. dollar and the U.S. stock market had inverse correlation, so positive days for stocks were negative for the U.S. dollar and vice versa.
Another bearish factor for the Canadian dollar is the continued weakness on the oil price front. WTI oil is currently trying to get through the $20.00 support level, while Western Canadian Select, which trades at a substantial discount to WTI, has firmly settled below $10.
It is possible that additional downside moves in WTI will not bring the corresponding hit to the Canadian dollar since there’s little room for further downside in the price of the Canadian oil since it currently trades not far from zero.
However, there are unique situations in the oil market when oil producers have to pay their customers to take delivery of oil since they have no storage for the oil they produce, so theoretically the Canadian oil can get into the negative pricing territory under the most extreme scenario.
The combination of weak oil and stronger dollar helped USD/CAD rebound after a major downside move. In my opinion, coronavirus-related data will continue to heavily impact the trading of the pair. Today, the markets are undecided whether they are in the risk-on mode (buying U.S. equities) or risk-off mode (buying U.S. dollar), but this may quickly change as traders get the new data.
USD/CAD has found support at 20 EMA near the 1.4050 level. Currently, the pair is trying to settle above the first material resistance level at 1.4150. This level has been tested right after the major downside move, and this test was unsuccessful since the pair met heavy selling in the 1.4150 area.
If USD/CAD manages to gain ground above 1.4150, the next major resistance level is located at 1.4330. This is a very material level for the pair so USD/CAD will likely need strong catalysts to go higher.
On the support side, a move below 1.4050 could take USD/CAD to the next support level at 1.3925. However, I’d expect that the pair will get increased buying interest near the 20 EMA.
This article was originally posted on FX Empire
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