USD/CAD attempts rebound on renewed crude oil plunge
James Chen, CMT February 2, 2016 9:00 PM
USD/CAD has tentatively halted its recent plunge and fluctuated around the key 1.4000 level and 50-day moving average for the first two days of the trading week, as the late-January relief rally in crude oil prices has reversed course.
Since mid-January, USD/CAD had been falling precipitously as crude oil rebounded from a tentative bottom after having dropped down to a 12-year low below $28 per barrel just two weeks ago. The USD/CAD currency pair has long been correlated to oil prices due to Canada’s reliance on oil exports as well as the US dollar’s inverse correlation with crude. As a result, drops in crude oil prices frequently translate into rises in USD/CAD, while surges in crude oil prices often result in declines for USD/CAD.
Prior to the current pullback down to the noted 1.4000 support/resistance area, the currency pair reached slightly above its 1.4600 upside target in mid-January on exceptional weakness in crude oil prices. Then, on hopes of a potential deal among OPEC and non-OPEC nations to restrain crude output, both the West Texas Intermediate and Brent Crude benchmarks rebounded and rallied off their lows, prompting the sharp pullback for USD/CAD.
What led to this week’s reversal of crude’s relief rally was a general realization that an output deal would not be easy to come by. Major oil-producing nations have conflicting agendas, and common ground would be exceptionally difficult to establish. Furthermore, persistent concerns about a slowing China economy and lowered oil demand from the world’s second largest crude oil consumer have exacerbated worries about oversupply.
As a result, a fundamentally bearish outlook on crude oil prices could potentially translate into a recovery of the current USD/CAD pullback, possibly towards further highs. This bullish outlook would be contingent upon the currency pair sustaining above the key 1.4000 level. In this event, upside targets reside at the 1.4200 level followed by the 1.4600 level once again. In the opposite event of an extension of the current pullback with a sustained breakdown below the 1.4000 level, the 1.3800 level is the next major support to the downside.
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.