The US Dollar is recovering after undergoing a period of intense selling pressure. This impressive recovery follows a period dominated by trade war panic and recession worry. Our oft-repeated prayer that the Canadian dollar annex the otherwise-unoccupied USD/CAD currency pair seems unlikely to be answered in this week’s trading. It is the second straight week of decreases. As of writing, bulls are looking at the 1.4100 support zone as the key battleground which seems to be protecting it from any short-term downturns. To illustrate the severity, earlier this week the pair touched a multi-month low of 1.4030-1.4025. Now, the psychological threshold of 1.4000 hovers dangerously in the rearview.
Caution rules the day among all market participants even with a recent speculative bounce. They are unwilling to reshort positions due to the continued downward move since the multi-year high in March. Spot prices were able to effectively halt a three-day losing streak, snapping back following a year-to-date low Thursday. Traders are anxiously awaiting key employment figures from both the United States and Canada. The upside for anything more than modest potential seems unlikely.
Employment Data and Market Sentiment
The upcoming release of the monthly employment figures from the United States Bureau of Labor Statistics at 12:30 GMT on Friday is creating anticipation in the market. Analysts believe that this will greatly affect the USD/CAD pair’s performance over the short term. Sentiment in the market has been swayed by these numbers—even more so considering our recent economic history with all its uncertainties.
Increasing oil production from several OPEC+ member states will shape market dynamics. In addition to employment, this new increase will be a huge benefit to the economy. Eight OPEC+ members unexpectedly decided to advance their plans to phase out production cuts, which will increase crude oil output by 411,000 barrels per day starting in May. This development will probably continue to impact the value of the Canadian Dollar, which is sensitive to swings in oil prices.
The yield on the benchmark 10-year US government bond has fallen back below the important 4.0% psychological level. It is the first time in six months that it has been this high. The drop in yields shows a dramatic turn in investor sentiment. This realignment will likely have ripple effects on currency valuations as traders start to rethink their trades.
Technical Analysis of USD/CAD
From a technical perspective, the USD/CAD pair has important support and resistance levels that are wrestling for control of the pair’s moves. The 1.4100 figure is presently serving as a support aggressor, shielding the downside threat. If this level fails to hold, traders will be looking for the pair to sink down towards the intermediate support at 1.3930. From there, they would be looking at 1.3900 and the congestion area of 1.3825 to 1.3815.
If the USD/CAD pair manages to sustain strength beyond the important 200-day Simple Moving Average (SMA), it could open up opportunities for further upside movement. The duo could jump above the 1.4300 level on the basis of this momentum. The analysts caution it may face resistance near the 1.4380 level or at the 100-day SMA.
The recent reversal off the 200-day simple moving average (SMA) indicates there might be a recovery in the cards. After enduring a more than two-month downward spiral in recent weeks, traders will want to proceed with caution. Therefore, investors would be prudent to keep a close eye on price action in and around these important technical markers.
Political Uncertainty and Trade Relations
In Canada, the Canadian Dollar is under pressure from political uncertainties and escalating trade tensions with the US. Ahead of Canada’s snap election scheduled for April 28, Prime Minister Mark Carney announced that previously stated retaliatory tariffs will remain effective. This includes imposing a 25% tariff on all vehicles imported from the U.S. that do not comply with the USMCA trade deal.
As a result, traders are jittery about the announcement. They are worried that it will deepen trade tensions, which would immeasurably damage Canada’s economic prospects. This dynamic between the domestic political scene and outside trading partners still is affecting investor confidence and market trends.