- A combination of factors kept USD/CAD on the defensive near three-week lows.
- The USD selling bias remained unabated amid the prevalent upbeat market mood.
- A strong rally in crude oil prices underpinned the loonie and should cap the pair.
The USD/CAD pair was seen oscillating in a narrow trading band, below the 1.3900 mark through the early European session on Thursday.
Following the previous day’s steep intraday decline of over 125 pips, the USD/CAD now seems to have entered a bearish consolidation phase and digested its recent slump to near three-week lows. Slightly oversold conditions on short-term chart held investors from placing fresh bearish bets and led to a subdued/range-bound price action.
The ongoing strong recovery momentum in crude oil prices – up another 15% – continued underpinning demand for the commodity-linked currency – the loonie. On the other hand, the US dollar remained depressed on the back of the latest optimism the re-opening of economies in some parts of the world, dismal US macro data and dovish FOMC.
The advance US GDP report released on Wednesday showed that the economy contracted sharply by 4.8% during the first quarter of 2020. Adding to this, the Fed cautioned that the negative impact from the coronavirus pandemic could prolong in the medium term and also showed readiness to ease monetary policy further if needed.
Meanwhile, the already stronger global risk sentiment got an additional boost from relatively successful clinical trials of Gilead Sciences’ retroviral drug – Remdesivir – to treat those infected by COVID-19. The upbeat market mood further dampened the greenback’s relative safe-haven status and exert some follow-through pressure on the USD/CAD.
Even from a technical perspective, the pair’s inability to register any meaningful recovery further semes to point that the near-term bearish pressure might still be far from being over. Hence, the range-bound trading action might still be categorized as a consolidation phase before the next leg of the pair’s depreciating move.
Later during the early North-American session, the US economic docket – highlighting the release of Initial Weekly Jobless Claims – might influence the sentiment surrounding the greenback. This coupled with oil price dynamics might further contribute towards producing some meaningful trading opportunities around the USD/CAD pair.
Technical levels to watch
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