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.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website 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.