USD/CAD Analysis: CAD bulls beware… Oil has run into a major trend line hurdle

The Canadian dollar strengthened today in a delayed reaction to yesterday’s oil price rally. The rally was set in motion during the Asian session, where the US dollar was having a breather.

In my USD/CAD analysis yesterday, I had noted that the Canadian dollar would rally once the US dollar shows signs of exhaustion.

Caution is the word for CAD bulls!

Canadian dollar bulls are advised not to get carried away by the rally seen today. This could very well be the short-term top (short-term bottom in USD/CAD)… unless the Fed rate hike bets drop significantly. This is because –

  • Oil has run into a major resistance level

Brent monthly chart

brentoil

Source: Netstation (www.netdania.com)

Prices have run into the resistance offered by the rising trend line coming from the December 1998 low and November 2001 low.

CAD bulls should wait for at least two consecutive daily close in oil above the trend line hurdle or at least a weekly close above the trend line.

A repeated failure at the trend line would open doors for a drop to $50.00 levels.

  • Trumponomics has yet to have its full effect on CAD

The Dollar-Yen pair rallied more than 1000 pips since November 9. The EUR/USD  shed more than 700 pips since November 9. AUD/USD and NZD/USD dropped 400 pips.

USD/CAD went from 1.3265 to 1.3589 (300 pips or so) and quickly fell back to 1.35.

To cut the long story short… The CAD remained relatively resilient during the “Trump Bump” mania. Clearly, it was speculation about OPEC deal that kept the CAD resilient.

In case, the oil fails at the trend line hurdle, the doors would be opened for the markets to price-in Trump Bump in the USD/CAD pair.

USD/CAD chart analysis: Dips below 50-DMA could find fresh bids

Daily Chart

usdcad.jpg

Source: Netstation (www.netdania.com)

  • The sharp drop seen today certainly adds credence to the topping formation seen around 1.3573 (50% Fib retracement), however, a failure to dip below 1.3310 (38.2% Fib retracement) amid rising 50-DMA and 100-DMA suggests the dips below the 50-DMA level of 1.3322 could be bought into.
  • We also have a bullish 5-MA and 10-DMA crossover on the monthly chart. The 5-DMA support on the monthly is seen at 1.3277.
  • A dip below 1.3322 (50-DMA) and towards 1.3277 could find fresh bids.
  • On the higher side, a rebound from 1.3310 followed by a break above 1.3433 would open doors for a re-test of 1.3573 (50% Fib retracement).

For in depth fundamentals… check out the well know Oil Analyst Gaurav Sharma’s take on the OPEC deal here – Sharma doesn’t buy the oil rally… something the CAD traders should take note of

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