Until February 20, we observed a steady downtrend in favor of the CAD. However, the new crisis on the oil market and the spread of coronavirus in the United States and Canada quickly changed the situation. In just a month, the euro strengthened against the CAD by 9.6 %, which is a rare and shocking event for currency pairs. In addition to the risks associated with the pandemic, the drop in oil prices to $20 was added. The Bank of Canada, which previously conducted the most hawkish monetary policy, began to rapidly reduce the interest rate: in just a month, it was reduced by 150 pips, which contributed to a decrease in the value of the Canadian dollar, and at the moment amounts to 0.25 pips.
At the beginning of this week, the rates held near their most recent highs. Investors are not investing in commodity assets, fearing the worst economic downturn in the past 10 years. The euro, in turn, was supported by good reports on unemployment. As it became known, in March, unemployment in the Eurozone fell more than expected - by 0.1%, on the background of the pandemic, although business activity is falling.
However, by the end of the week, we could see a sharp strengthening of the Canadian dollar. The decisive factor was good news from the oil market. On Thursday, it became known that there is some agreement between Saudi Arabia and Russia to reduce oil supplies by 10 million barrels. Thanks to this, oil has increased by 20% in just a few days, and it is possible that this is just the beginning of the recovery.
Rising oil prices will reduce the risks for the Canadian economy. Even if prices could not recover to the level of 50+ dollars in the foreseeable future, disastrous consequences will likely be avoided. In the current situation, we believe that the deals to SELL will be the most effective in the near future, even if this is a temporary price correction. Most technical analysis tools, including the MACD and Stochastic oscillators, also indicate the efficiency of short deals.
