USDCAD: Will the Loonie finally make up its mind?

The US dollar has eased off its best levels after rebounding across the board following the release of some strong US macroeconomic pointers on Tuesday. In addition, the Fed’s Dennis Lockhart tried to talk up the potential for a June rate hike, suggesting that the "markets may be reading this more pessimistically [than he is]" as the economic outlook for the US remained robust.  Meanwhile, the Canadian dollar has weakened against most major currencies despite the fact crude oil prices have repeatedly hit new 2016 highs this week. Consequently, the USD/CAD pair has been able to hold its own relatively well. In part, the breakdown between oil prices and the Canadian dollar can be explained away by the impact of the wildfires, as not only has this had a direct impact on Canadian oil output but also wider negative economic implications. Unfortunately, things could go from bad to worse for the CAD if oil prices were to pull back sharply now from these relatively elevated levels.

The Loonie will be in focus again today ahead of the US weekly crude stockpiles report and the FOMC’s last meeting minutes. If oil prices fall, say on a surprise crude inventory build or otherwise, then the USD/CAD may finally break out of its recent consolidation range to the upside, above 1.30. Indeed it would be a ‘surprise’ if oil inventories had risen last week, for the API has estimated that supplies fell 1.1 million barrels and the official EIA data is expected to show a larger 3.1 million decrease, largely because of lower oil exports from Canada. Conversely, if oil prices rise significantly then the Loonie may once again go for a test of the long-term support/resistance level of 1.2835, before making its next move.

As ever, it is the reaction of price to news – rather than the news itself – that will be more important when it comes to trading. So, whatever today’s news may turn out to be, watch the reaction of the USD/CAD around the key short-term resistance and psychological level of 1.3000 on the upside and 1.2835 on the downside. A potential break above 1.3000 may pave the way for an eventual rally towards the 38.2% Fibonacci retracement of the recent downswing at 1.3310/15 or the 200-day moving average at 1.3360. Alternatively, a decisive break back below the pivotal 1.2835 level could potentially pave the way for an eventual re-test of the 1.2500 handle at some point.

 

Meanwhile WTI crude oil (figure 2) has reached the 61.8% Fibonacci retracement against the May 2015 high. Given the technical importance of this level and the fact that the RSI is suggesting oil prices are "overbought," I wouldn’t be surprised if we were to see a pullback of some sort even if this afternoon’s US oil stockpiles report shows a large drawdown.

Figure 2:

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.

The markets are moving. Stop missing out.

Open an Account