USD/CAD 1.3700 Pivot: Will the “Warsh Shock” or $61 Oil Control the Loonie?
In late European trading, USD/CAD hovered around $1.3656 after a clear bearish move on the 4-hour chart. The pair reached a high...
Quick overview
- USD/CAD is trading around $1.3656 after a bearish move, failing to break key resistance at $1.3863.
- The Canadian dollar is under pressure due to falling crude oil prices, which have dropped over 5% amid US-Iran talks.
- Technical analysis shows the pair is in a bearish channel, needing to close above $1.3702 to halt the downtrend.
- The US dollar remains resilient due to the Federal Reserve's cautious policy outlook, supporting the pair despite bearish signals.
In late European trading, USD/CAD hovered around $1.3656 after a clear bearish move on the 4-hour chart. The pair reached a high of $1.3675 but stayed below key resistance after failing to break the descending trendline near $1.3863.
The main reason for the Canadian dollar’s weakness is falling crude oil prices, but now the pair is also facing a test of demand.
Falling Oil Prices Pressure the Canadian Dollar
West Texas Intermediate (WTI) crude oil dropped over 5% after four days of losses, now trading near $62.00 per barrel. The drop is mostly due to ongoing US and Iran talks, which have lowered geopolitical risk premiums.
Since oil is a key Canadian export, lower prices have put direct pressure on the Canadian dollar. This has helped prevent a bigger drop in USD/CAD, even with the technical breakdown.
USD/CAD Technical Analysis: Structural Demand Under Fire
The pair is moving in a bearish channel, having dropped below the 0.5 Fibonacci level at $1.3787 and the 0.618 ‘Golden Ratio’ support at $1.3753.
- Candlestick Behavior: Recent price action shows a deep liquidity search, with a quick dip below $1.3523 support followed by a sharp wick recovery.
- Moving Averages & RSI: The pair is still held back by the 200-SMA (blue) and 50-EMA (red). The RSI has rebounded from an oversold level of 20 to about 55, but momentum is still weak.
- Critical Pivot: The pair needs to close above $1.3702 to stop the current downtrend.
Fed Policy Outlook Supports Greenback Resilience
The US dollar is supported by the Federal Reserve’s careful approach. Kevin Warsh’s nomination as Fed Chair points to a cautious stance on easing policy.
St. Louis Fed President Alberto Musalem said there is no urgent need for more rate cuts, and Atlanta Fed President Raphael Bostic stressed the importance of keeping policy tight.
This hawkish tone gives the pair some support, even though technical signals point to more downside.
Trade Idea: Consider a short position if the pair rallies to $1.3711, aiming for a retest of the $1.3523 lows and setting a stop-loss above $1.3766.
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