We saw a classic case of buy-the-rumor-sell-the-news price action on USDCAD. Yesterday, the currency pair traded in favor of the Loonie in anticipation of details of the Canadian government’s coronavirus relief package. Among the majors, USDCAD scored the most gains against the US dollar when it closed 1.88% or 271 pips lower at 1.4191. However, following the announcement today, the currency pair is trading 0.55% from its opening price.
In a statement by Prime Minister Justin Trudeau, he announced that the actual coronavirus relief package would be twice more than what was initially said last week. A total of 52 billion CAD will be made available to small businesses, citizens who lost and cannot find jobs, and families. It was initially outlined that only 27 billion CAD would be available. Why did USDCAD trade higher despite a bigger fiscal package? It may have already been priced in by market investors already that when it was actually released, some investors chose to square their positions.
Details of this package includes giving people affected by the coronavirus 2,000 CAD. Meanwhile, loan repayments will be extended and tax deferrals will be implemented. Oil companies in Canada who have also been hit by the ongoing oil price war will also be bailed out. The details of which are still yet to be released.
Meanwhile, the US Senate just passed a 2 trillion USD-coronavirus relief package. The next step would be for the US Congress to vote on it tomorrow. After that, it will be up to US President Donald Trump to sign and make official.
On the daily chart, USDCAD has retraced some of its gains back to the area around the 23.6% Fib level (when you draw from its January 6 low to the high of March 19). Reversal candles around its current price may suggest that USDCAD may soon retest its 4-year highs at 1.4666.
Keep a close eye on the hourly time frame to gauge if buyers still have their momentum. By connecting the highs of March 24 and March 25, it can be seen that USDCAD has some room to trade higher and still maintain its downtrend. There is trend line resistance around 1.4306 which also coincides with the 200 SMA. When drawing the Fibonacci retracement tool from yesterday’s high to its intraday swing low, it can be seen that this price also aligns with the 50% Fib level. If buyers run out of steam, any upward movement on USDCAD could be limited at this price level.
On the other hand, a close below yesterday’s low at 1.4176 could mean that a deeper pullback is ahead. Should this happen, the next support level on USDCAD would be around 1.3800 where the 50% Fib level is on the daily time frame.More content