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.