The USDCAD extended its surge on Wednesday after the Bank of Canada (BoC) held rates at 0.25% as expected, following a series of emergency cuts in March 2020. The Canadian Dollar has been under pressure for several weeks following the drop in crude oil price as well as last week’s weak jobs report, where virtually any gains made in employment in 2019 have been wiped out by the coronavirus pandemic.
In its rate statement, the BoC noted that the strength of the Canadian economy had been eroded by the coronavirus pandemic, with “sudden and deep contraction in economic activity and employment” on a global scale. It also noted the drop in crude oil prices and the negative impact it has had on the Canadian economy. With 1 million jobs lost and 6 million Canadians applying for the Canada Emergency Response Benefit, the BoC notes an outlook that is too uncertain to enable a forecast.
A new Provincial Bond Purchase Program of up to $50 billion has been initiated to add support to the Provincial Money Market Purchase Program. A new Corporate Bond Purchase Program that allows the BoC to purchase corporate bonds of investment-grade in the secondary market will also come on stream.
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Technical Outlook for USDCAD
The continued faltering of crude oil price as well as the easing stance of the Bank of Canada may continue to weaken the Canadian Dollar in the short term. Supporting this outlook is the picture on the daily chart, which shows today’s daily candle trading from one border to the other of a falling wedge pattern. This pattern tends to have bullish outcomes.
The price must break above the wedge for the bullish expectation to come to fruition. This could come in the form of a double successive closing penetration by the daily candles on the chart. Fulfilment of this criterion allows the USDCAD to push towards the breakout price projection target of 1.45177. However, this target is expected to meet resistance at 1.41514, 1.42746 and also at 1.43193, depending on how the predicted advance goes.
On the flip side, rejection at the upper wedge border followed by recovery of the Canadian Dollar could allow the USDCAD to push downwards towards the support targets at 1.37629. This price move would invalidate the pattern and bring more support targets into focus, such as the 1.36961 (11 March 2020 low) and possibly the 1.35235 price level. However, this converse move is more of an uphill task and would require a massive recovery move on crude oil prices to support it.
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