USD/CAD turned down sharply from the key 1.3000 psychological resistance level on Monday as crude oil prices rebounded and pared losses after having plunged on Sunday’s failed oil deal meeting in Doha, Qatar. Initially, crude oil prices had gapped down significantly after news of the failure to strike a deal among major OPEC and non-OPEC countries was made public. Monday, however, saw oil prices close the gap as the benchmarks, WTI and Brent, both recovered much of their losses.
Prior to and following the oil meeting, the Canadian dollar closely mirrored price action on crude oil, as is typically the case due to Canada’s traditional economic reliance on oil-related exports. In the immediate run-up to the Qatar meeting and on news of the meeting’s results, the Canadian dollar fell sharply, boosting the USD/CAD currency pair back up to the key 1.3000 psychological level. On Monday morning’s strong recovery in crude oil, however, the Canadian dollar closely followed suit, pressuring USD/CAD back down to its major 1.2800 support target.
Just last week, USD/CAD hit and dipped under that 1.2800 target, establishing a new 9-month low for the currency pair. That low was the latest culmination of a strong downtrend that has been in place since January’s long-term highs near 1.4700. This downtrend has largely resulted from the combination of a weakening US dollar and a strengthening Canadian dollar boosted by recovering crude oil prices within the past three months. During the course of the downtrend, USD/CAD has broken down below multiple key support factors, including the 1.4000 and noted 1.3000 psychological levels, as well as a major uptrend line that extends back to the lows of July 2014. Additionally, the 50-day moving average has crossed below the 200-day moving average in the past several weeks, forming a technical "death cross" and suggesting strong bearish momentum. With any sustained breakdown below the 1.2800 level, USD/CAD could next begin to target the 1.2500 support objective to the downside, which would confirm a continuation of the current three-month bearish trend.