As the market reacted cautiously to the very ambiguous Fed’s resolution, leaning toward a dovish stance, but unable to provide any strong forward-looking guidance, the US dollar/Canadian dollar fell slightly to 1.3349, trading in the range of 1.3332-1.3387 .
As the US dollar is at a trough, the US dollar/Canadian dollar is facing downward pressure. However, the dollar’s position has moved further to the short position, which may mean that extreme conditions will be corrected and cause the dollar to rebound. On the other hand, if the role of the Canadian dollar as a financing currency increases, the USD/CAD decline may last longer, especially as the oil market dynamics of the Canadian economy improve. Analysts at TD Securities pointed out that in the next few months, shale gas will not be able to significantly increase its production. “Under this background, the continued recovery in energy demand may further increase oil prices, but the current lack of such a recovery implies that crude oil prices are still range-bound for the time being.”
Canada’s May gross domestic product (GDP) report will be released on Friday. If there are signs that the economy is on track to recover, the report may help boost the Canadian dollar. TD Securities analysts said: “Canada seems to have made a solid transition to the recovery phase; we expect industrial GDP to grow by 3.9% in May, and retail activity and employment data show that economic activity will accelerate in June. Therefore, we expect real GDP in 2020. Will grow by 6.8%, while the Bank of Canada’s forecast is -7.8%.” “However, the recent improvement in data does come from more accommodative policies (such as more credit easing or yield curve control), so tightening policies It is even less likely. We expect to raise interest rates in the second quarter of 2022, but it is also possible to tighten policy as early as mid-2021 or as early as 2024.”
The euro/dollar also hit 1.18 for a while, reaching its highest level since September 2018. As the Fed painted a worrying picture of the resurgence of the epidemic, this has already affected consumption and employment. The Fed has pledged to use all its powers and tools to support the economy. Fed Chairman Jerome Powell emphasized that the development of the situation is highly dependent on the epidemic.
After breaking through the 1.18 point, the next levels to watch are 1.1815 and 1.1860, and there is almost no resistance before 1.20. The weekly chart shows that the EUR/USD is entering an overbought state.
In terms of downside risks, there is support near the daily low of 1.1710, and the subsequent 1.1570 and 1.1495 are both support points.