USD/CAD on the rebound as crude oil fails to rally
James Chen, CMT February 10, 2016 12:40 PM
Despite US government data on Wednesday showing a surprise draw in crude oil stockpiles of 754,000 barrels for last week, against previous expectations of over a 3-million-barrel build, oil prices failed to rally. Quite the opposite, the West Texas Intermediate (WTI) benchmark dropped to a new 12-year low around the $27 level.
This drop extends Tuesday’s plunge, which indicates that the market has low confidence in a successful output deal among oil-producing nations materializing anytime soon. Even pronouncements by Iran’s oil minister on Wednesday that asserted the country’s willingness to negotiate on output with Saudi Arabia failed to boost foundering oil prices.
Since the Canadian dollar is closely correlated with crude oil prices due to Canada’s reliance on exports of oil products, the USD/CAD currency pair has been strongly affected by the continued plummet in crude oil.
While USD/CAD has, since mid-January, been mostly entrenched within a sharp pullback from multi-year highs around 1.4600 resistance, the hammer candle last week that reached down to a new year-to-date low of 1.3638 has prompted a pivot back to the upside. Could this be signaling a potential end to the recent pullback, especially in light of persistently depressed oil prices?
This could be the case, as Wednesday saw USD/CAD rise up to approach the key 1.4000 psychological level once again as crude oil fell to new lows and the US dollar regained a bit of its recently lost strength.
From a longer-term perspective, the currency pair continues to trade within a strong bullish trend, despite the noted pullback in late January and early February. With the prospect of a successful oil output deal somewhat difficult to imagine given strong underlying differences among major oil-producing nations, continued weakness in crude could be one of the catalysts that potentially propels USD/CAD to new highs. In the short-term, the key 1.4000 psychological resistance level continues to be the major level to watch. With any sustained breakout above 1.4000, the currency pair could be on track once again to target 1.4200 resistance followed by a potential retest of the noted 1.4600 resistance level further to the upside.
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.