USD/CAD slumps but clings to 1.2470s on Ukraine’s conflict and elevated oil prices

• The Loonie trims weekly losses, so far up 0.01% on dismal market mood.
• The longer the Russia-Ukraine war, the heaviest the burden of global inflation as commodities rally.
• USD/CAD Price Forecast: To continue downwards, except that USD bulls push the pair decisively above 1.2530.

The USD/CAD extends its fall for the second straight day; after Monday’s price action printed a weekly high near the 1.2600 mark, the Loonie strengthened on the back of high oil prices, amid a downbeat market mood, courtesy of recent developments in the Eastern Europe front. At the time of writing, the USD/CAD is trading at 1.2475.

Developments in Eastern Europe fail to show progress, boost oil prices

US equities finished in the red, reflecting a dismal sentiment. Russian officials said that even though Ukraine has made an effort to fulfill some of the Russian demands, peace talks have not reached a breakthrough, as reported by the Kremlin. Also, as reported by Aljazeera Tweets, the Polish Deputy Prime Minister noted that Russia is preparing a new attack in Ukraine and added that all indicate that we are facing a long war.

That said, commodity prices aimed higher, led by crude oil and precious metals. The US crude oil benchmark, WTI, is trading at $107.44 per barrel, up 2.26% compared to Tuesday, while gold closes to 1% gains, exchanging hands at $1935.16  troy ounce.

In the FX space, commodity-linked currencies like the Canadian dollar continues strengthening vs. the greenback. Overnight, the USD/CAD opened near 1.2500, the day’s highs, and retreated towards 1.2420s until settling down around the 1.2470-90 area.

An absent Canadian economic docket left USD/CAD traders leaning on US macroeconomics. The US docket unveiled the ADP Employment Report, which came better than expected, showing an increase of 455K jobs in the economy in March, more than the 450K foreseen. Furthermore, the US GDP for the Q4 of 2021 grew at its highest pace since 2020’s Q3. The final reading rose by 6.9%, lower than the 7.1% estimated.

Later, Richmond Fed President Tomas Barkin said that he’s open to raising rates by 50-bps at the May meeting, depending on how strong is the US economy.

USD/CAD Price Forecast: Technical outlook

The USD/CAD is facing solid support at the 1.2420, which once pierced, jumped off immediately, a signal that it’s going to be defended by USD bulls. In fact, Wednesday’s price action is forming a hammer, a candlestick that, at the end of an upward/downward move, signals a change of the trend, but it would need confirmation.

Upwards, the USD/CAD first resistance would be 1.2500. A clear break would send the pair towards a renewed test of 1.2600, but first, it would face resistance at 1.2552.

On the flip side, in the event of extending the downtrend, the USD/CAD first support would be January 19, 1.2438 daily low. A breach of the latter could open the door towards 1.2288, but first, it would face November 10, 2021, a daily low at 1.2387, followed by 1.2300, and then the aforementioned 1.2288.