USD/CAD Fueled By Slumping WTI

The recent weakness in WTI crude oil pricing has had an impact on the USD/CAD, essentially holding rates above the 1.3400 handle. Seasonal WTI buying trends are currently non-existent, with energy traders betting that $60.00 crude oil is more sustainable in the long-run than $70.00. While this phenomenon may be only temporary, the negative price action hasn’t done the Canadian dollar any favors.

On the forex front, it has been a positive session for the Greenback. Although equities are on the slide, rates of June USD Index futures are holding firm above 97.400. This is a positive development for USD bulls, as the past two sessions have been decisively negative. Perhaps we are beginning to see the dollar regroup following a brutal late-April.

WTI Slides, USD/CAD Rallies

The commodity relationship between the USD/CAD and WTI crude oil is certainly no secret. The past two days have exemplified this correlation, with whipsaw WTI pricing sending the USD/CAD reeling.

At press time (about 12:00 PM EST), June WTI crude oil futures have bounced off of intraday lows to the $61.25 area. This is a key development, as prices appear to be attracted to the $60.00 level. At least for today, it looks as though the early-May bearish action in WTI is stabilizing.

Here are a few levels to keep an eye on for the USD/CAD:

• Resistance(1): Key Number, 1.3500
• Resistance(2): 78% Weekly Retracement, 1.3532
• Support(1): Daily SMA, 1.3438
• Support(2): Bollinger MP, 1.3396

Bottom Line: This week’s crude oil inventories number is going to be a key element in the USD/CAD valuations. The recent trend has been building supply ― if the EIA and API reports miss expectations badly, then we may be in for a directional move in the Loonie.

Until elected, I will have sell orders queued up from beneath the Weekly 78% Retracement at 1.3528. With an initial stop at 1.3578, this trade produces 50 pips on a 1:1 risk vs reward plan and a rejection of the 78% macro resistance level.

ABOUT THE AUTHOR See More

Shain Vernier

US Analyst

Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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