The USDCAD currency pair showed a strong upward momentum on Tuesday's trading session, and this movement continues to develop today. The bears failed to consolidate below the support level of 1.365, just like at the end of April. Deeper drawdowns are successfully bought back, indicating the continued weakness of the Canadian dollar against its US equivalent. The renewal of last month's highs is quite likely, but before that the price should break through to the level of 1.38.
Reuters analysts believe that currency market participants are reducing long positions in the Canadian dollar ahead of Friday's release of the labor market report for April. The similar US data turned out to be worse than expected, so now investors are concerned about a negative surprise from Canada as well. Statistics for March, published on April 5, caused a surge in USDCAD quotes. Such a scenario is possible this time too, especially if the number of jobs in Canada declines again.
Rahim Madhavji, president of Knightsbridge Foreign Exchange, does not see any room for significant strengthening of the Canadian dollar against its US equivalent. The interest rate differential continues to benefit the US currency, and the gap will increase further in the near term. The Bank of Canada will ease monetary policy at its meeting on June 5 with a probability of almost 70%, while the Fed will hold a pause until the fall.
The renewed decline in oil prices is also putting pressure on the Canadian currency. The US data indicated a rise in crude inventories, while the Energy Information Administration (EIA) worsened its forecast for oil demand. At the same time, the Middle East crisis has reduced its impact on oil prices, and there may not be any other stimuli to boost crude prices until the OPEC+ meeting on June 1.
The support level of 1.365 proved its strength, and the bulls regained the initiative in trading USDCAD. Their nearest target should be 1.38.
Consider the following trading strategy:
Buy USDCAD at the current price. Take profit – 1.38. Stop loss – 1.37.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
