InstaForex

August 24, 2021

USD/CAD Has Plunged 300 Pips, What Really Happened?

 In the past week, investors have seen an energetic price surge displayed on the chart of the USD/CAD currency pair with over 400 pips of weekly gains being recorded.


However, after reaching the high of 1.29500, the price started to decline again from the resistance level and closed the weekend trading above the level of 1.28000.


Continuing at the beginning of the market opening this week, the price has again displayed a significant decline below the price zone of 1.28000 with almost 200 pips of daily decline till the end of the New York session.


Two main factors are seen to have driven the situation of price movements.


First, the depreciation of the US dollar following concerns over the latest Covid-19 wave will hamper the implementation of asset purchase reduction measures (tapering) by the Federal Reserve.


Second, the positive sentiment of the crude oil market supported the strengthening of the Canadian dollar as crude oil was Canada's main export.


The projected rebound in fuel demand is seen to revive the global crude oil market and is expected to continue to drive the Canadian dollar to higher levels again this week.



On the USD/CAD chart, the bearish trend of the price is seen more clearly this week with the decline still displayed at the beginning of the European session today (Tuesday).


The price zone around 1.26000 is seen to be tested to continue to give an indication of the direction of further price movements.


The price that remains continuing the decline will head back to the previous focus levels such as at 1.25400 and 1.25000.


However, if the price increase occurs again, the 1.28000 zone is seen to be an important resistance for the price. Failure to pass that zone will push the price to resume decline.


If the price surge continues to pass beyond that resistance, bullish expectations will once again test the 1.29500 high reached last week.