USD/CAD drops to key level as crude oil rebounds
James Chen, CMT August 11, 2016 12:06 PM
Thursday’s rebound in crude oil prices came after the International Energy Agency projected that crude oil markets would see a rebalancing within the next several months, with global oil inventories finally seeing a draw towards the end of the year. This projection reversed Wednesday’s losses that were partly driven by a surprise build in US inventories. Thursday’s oil surge helped support the correlated Canadian dollar, pressuring the USD/CAD currency pair.
Also helping to weigh on USD/CAD has been stagnation in the US dollar. After getting a sharp boost on last week’s stellar non-farm payrolls employment report, the dollar has given back its gains, and then some. This pullback is partly due to persistent doubts that the Fed will raise interest rates this year despite two months of highly positive employment data.
USD/CAD’s noted drop on Thursday to key 1.3000 support is even more significant from a technical perspective because this level is also right at the important 50-day moving average as well as the bottom of a large rising wedge pattern that has been in place since May’s 1.2500-area lows. For the entire duration of this wedge pattern, USD/CAD has been trading in a relatively tight, but slowly climbing, consolidation.
At the current confluence of support, the currency pair has dropped down to hit a critical juncture. Price action could either find strong support at this level and continue its consolidation, or it could break down. A breakdown would most likely be driven by a continued recovery in crude oil prices and/or extended weakness in the US dollar as the Fed continues to postpone raising interest rates in the face of the global trend of central bank easing. In the event of such a breakdown below the 1.3000 level, the next major downside target is at the 1.2800 support level.
Disclaimer: The information on this web site 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. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.