Watch out for the Canadian Dollar – The Sudden Spike in Oil Prices Could Support the Loonie
Eric Furstenberg • 3 min read
The Canadian dollar has declined considerably against a robust US dollar in the last few weeks. The Buck was forced to give back some of this gains in the last two trading days, but especially on Monday.
USD/CAD Daily Chart
As you may have noticed on this chart of the USD/CAD, the bullish momentum seems to be somewhat exhausted. The slow stochastics indicator at the bottom of the chart also suggests the presence of some negative, or bearish divergence. Negative divergence is when indicators like slow stochastics or the RSI indicator move lower, while the price of the instrument is reaching new highs. This could be an indication that there may be an imminent downward move in the price. This doesn’t guarantee that the instrument will trade lower, but it’s something to take note of.
I don’t think this correction will turn into a major trend reversal, but perhaps there could be a corrective phase before we get another leg higher. If the oil price continues to surge in the next few days and the US dollar loses some more steam, there could be a deep correction in the USD/CAD.
OPEC members and certain non-members (including Russia) are set to formally agree on an oil production freeze on 30 November. OPEC has previously bluffed about freezing or curbing oil production. Will they really strike a deal this time? Who knows. One thing is sure – if a deal is made and the oil price soars, the Canadian dollar will be positively affected. Conversely, if OPEC and the other countries which are involved fail to agree, the oil price could tumble which would weigh on the Canadian dollar.
The USD/CAD is currently at an important juncture. The pair is currently supported by the 20-day exponential moving average. If the pair breaks below this moving average in the next few days, it could be an indication of a notable correction or even some sideways chop. If the 20-EMA holds as support, the pair could use this support as a base for further advances.
The core retail sales number out of Canada is something to watch tomorrow. The release is scheduled for 13:30 GMT. This is a piece of important economic data which has the potential to move the USD/CAD exchange rate.
This pair made quite an aggressive pop higher on Monday. I recently mentioned that I expected some sideways movement of this pair. Perhaps this is the start of some range-bound price action which might last for a few weeks.
GBP/USD Daily Chart
Perhaps we’ll get a pop into the red resistance zone which you can see on the chart above. Maybe not this week, but possibly in the next few weeks. This could be a great level to sell the pair at. At the moment I’m not interested in playing this pair, except on a scalping basis if we maybe get some impulsive intraday moves. There was such an impulsive move on Monday, look at the following chart:
GBP/USD 5-Minute Chart
EUR/USD Daily Chart
Just like the pound, the Euro fought back against the US dollar today. As I mentioned in the previous article, this mighty decline was unlikely to continue any further without some sort of a retracement. Today’s bullish candle could be the start of such a retracement. The pair is terribly oversold, and some profit taking over the next few days is likely. I wouldn’t be surprised if the pair reached 1.0750 before the end of the week. Of course, this is not guaranteed, and the pair could just trade lower from here. Let us not forget that there is a strong downtrend in play at the moment.
AUD/USD Daily Chart
This pair has also felt some relief from the very aggressive selling over the last few days. Perhaps the pair will also retrace some more during this week. If we get a run up to the 200-day moving average, it could be a good opportunity to short this pair once again.
Besides the data out of Canada which I mentioned already, the only other important event on Tuesday is the existing home sales number out of the US. This will be released at 15:00 GMT.
Have a great trading day!