USD/CAD breaks down to 1.3000 on dovish Fed, crude oil surge

Wednesday’s FOMC statement and press conference have come and gone, and financial markets have continued to react strongly to a very clear verdict. The Fed has become substantially more dovish than in December when it raised interest rates for the first time in over nine years, and also even more dovish than its most recent meeting in late January. Wednesday’s statement and press conference have led market participants to expect that this year’s pace of monetary tightening could essentially be halved from forecasts made in December.

As may have been expected, the market consequences of this statement could most readily be discerned on the US dollar, which plunged against other major currencies on Wednesday shortly after the Fed’s announcement, and continued to fall as of Thursday morning. This has helped prompt USD/CAD to drop down to a major psychological level at 1.3000.

At the same time, crude oil prices have benefited from the weaker US dollar in the past two days and have also been further boosted by tentative confirmation of a meeting set for mid-April among major OPEC and non-OPEC nations to discuss an oil production cap. This surge in the price of crude has reversed losses suffered earlier in the week, and has further boosted the oil-correlated Canadian dollar.

Together, the significantly dovish Fed statement combined with stronger crude oil prices have led to a major breakdown for USD/CAD below both the key 1.3200 support level as well as a major uptrend support line extending all the way back to the mid-2014 lows. As of Thursday morning, the currency pair has settled around the key 1.3000 psychological support level, which is also at an important 61.8% Fibonacci retracement of the recent bullish trend from the May 2015 lows up to January’s 1.4600-area multi-year high.

As such, USD/CAD has reached down to yet another critical support juncture. With any continued downside momentum and sustained trading below this 1.3000 level due to a continued recovery for crude oil and weakness in the US dollar, the next major downside target is at the key 1.2800 support level. Any further drop below 1.2800 could open the way for USD/CAD to target further weakness towards 1.2500.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT