USD/CAD drops to fresh 2-week lows amid surging oil prices, notable USD supply

• A combination of factors exerted some fresh downward pressure on USD/CAD.
• A further improvement in the risk sentiment dented the USD’s safe-haven status.
• A strong recovery in oil prices underpinned the loonie and added to the selling bias.
• Bears likely to aim for a slide below 1.39 mark ahead of US GDP, FOMC decision.

The USD/CAD pair edged lower through the early European session and dropped to fresh two-week lows, around the 1.3930 region in the last hour.

The pair failed to capitalize on the overnight late rebound of around 65 pips, instead met with some fresh supply near the key 1.40 psychological mark and was being weighed down by a combination of factors.

The latest optimism over the slowing spread of the coronavirus and a move to re-open economies in some parts of the world boosted investors’ confidence. This, in turn, dented the US dollar's perceived safe-haven status.

This comes amid some strong follow-through recovery in crude oil prices, which underpinned demand for the commodity-linked currency – the loonie – and contributed to the pair's downfall for the third consecutive session.

Oil prices built on the previous day's strong intraday bounce and jumped nearly 15% on Wednesday on hopes for some demand recovery, especially after some European countries and the US cities moved to ease coronavirus lockdowns.

Meanwhile, the pair's inability to move back above an important horizontal support breakpoint – now turned resistance near the 1.40 mark – clearly suggests that the near-term bearish pressure is still far from over.

Hence, some follow-through weakness below the 1.3900 round-figure mark, towards testing April monthly swing lows support near the 1.3860-55 region, now looks a distinct possibility as the focus now shifts to the US macro data.

Wednesday's US economic docket highlights the release of the advance Q1 GDP report, which is expected to show that the economic activity contracted sharply by 4.0% annualized pace amid the coronavirus-induced lockdowns.

This will be followed by the latest FOMC monetary policy decision, which will be looked upon for clues about the central bank's future policy path. This will influence the USD price dynamics and provide some meaningful directional impetus.

Technical levels to watch