Top Story

USD/CAD bounces off major support after sharp oil-driven move

USD/CAD took a quick dive early on Monday as the US dollar continued its recent pullback and the energy-linked Canadian dollar was driven higher by surging crude oil prices after Saudi Arabia and Russia agreed to extend oil production cuts. As crude oil rose sharply, a corresponding rise in the Canadian dollar helped push USD/CAD down to major support around the key 1.3600 level before bouncing.

1.3600 is an important previous resistance level, having served as a bearish reversal point when the currency pair hit a high around 1.3600 at the very end of last year. The level now serves as key potential support after USD/CAD broke out above 1.3600 in late April and then went on to hit a high slightly short of its 1.3800 resistance target just over a week ago.

The sharp surge for crude oil and the Canadian dollar on Monday was based on an agreement between two of the largest participants – Saudi Arabia and Russia – to extend the OPEC-led production cuts. There are many more participants, however, that need to sign-off on an extension in order for the supply cuts to be perpetuated further. Also, despite recent data showing a large and unexpected drop in US crude oil inventories, US oil production is highly unlikely to abate at current price levels. Therefore, while a Saudi-Russia agreement to extend production cuts is indeed encouraging, there are several other obstacles potentially impeding lower crude supply and higher oil prices.

By Monday afternoon, the initial crude oil rally had lost momentum, paring its earlier gains. This also had the effect of paring Canadian dollar gains and producing the noted USD/CAD bounce off 1.3600 support. If 1.3600 continues to hold as support, any counter-reaction to Monday’s oil surge and/or US dollar pullback could prompt USD/CAD to head back up towards the 1.3800-area highs. And any further potential breakout above 1.3800 would confirm a continuation of the long-term USD/CAD uptrend.

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.