USD/CAD at key support as oil rally sputters
James Chen, CMT January 10, 2017 1:29 PM
Fast forward to the second week of 2017 – the US dollar continues to stall, keeping USD/CAD grounded for the time being, while optimism over the production deal has already begun to meet some challenges. As widely suspected during last year’s talks among oil-producing countries to cut output, a major obstacle to effectively stabilizing oil prices under the deal would be the key factor of US and Canadian production. This is especially the case since the incoming Trump Administration has been strongly supportive of increased US energy production. Indeed, US drilling companies added rigs for the 10th consecutive week last week. This was on top of the substantial increase in rigs seen in Canada.
Therefore, there has been a clear indication that despite the OPEC deal having been reached, the US and Canada are more than ready and willing to pick up the slack as oil prices rise, or at least remain elevated. And this is on top of the fact that there is still much uncertainty as to how well participants of the OPEC agreement can or will adhere to their end of the deal. This potentially creates a fundamental barrier to much higher oil prices that has thus far prompted a sharp pullback in the crude oil benchmarks this week.
Partly as a result of this pullback, the rally in the Canadian dollar has stalled, and USD/CAD has tentatively paused its slide at key support around the 1.3200 level. This also places the currency pair just above support provided by its 200-day moving average. If the markets continue to express concern over the effectiveness of the OPEC deal, and the US dollar remains relatively well-supported on the anticipation of higher interest rates under the new Trump Administration and a more hawkish Federal Reserve, USD/CAD could see a bounce from around its current support structure. In the event of such a rebound, a key upside target resides around the 1.3400 resistance level. In a contrasting scenario, however, any major technical breakdown below 1.3200 support on renewed crude oil optimism could send the currency pair down towards 1.3000 psychological support.
More From James Chen, CMT
- Technical breakdown extends bearish pressure on dollar March 21, 2017 2:58 PM
- Market risks sustain GBP/JPY pressure March 20, 2017 1:53 PM
- See More
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. GAIN Capital Group, LLC is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission (CFTC)and is a member of the National Futures Association (NFA # 0339826) in the US, GAIN Capital UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, GAIN Capital Australia Pty. Ltd is regulated by the Australian Securities and Investment Commission (ASIC) in Australia, and GAIN Capital Japan Co. Ltd is authorised and regulated by the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options.