USD/CAD: upward correction against the background of falling oil prices

USD/CAD: upward correction against the background of falling oil prices

14 June 2016, 13:48
Yuri Papshev

Trading recommendations

Buy above 1.2860 level. Stop-Loss 1.2810. Take-Profit 1.2900, 1.2955, 1.3100, 1.3185, 1.3300

Sell ​​Stop 1.2810. Stop-Loss 1.2860. Take-Profit 1.2755, 1.2635, 1.2525, 1.2500, 1.2200


Technical analysis

Since the end of last week, when oil prices were adjusted after the oilfield services company Baker Hughes reported an increase in the number of active oil rigs in the United States in a row the 2nd week, it began to grow and the pair USD / CAD. Recently, the US company Genscape Inc. reported on the likely increase in US oil inventories in the warehouses week 4 - June 10 525 000 barrels, which also has a negative impact on the oil quotations, and this, in turn, entails a decrease in the Canadian dollar quotations.

On the daily chart of the USD / CAD has formed a new ascending channel with a lower limit near the mark of 1.2635 (level 50% Fibonacci correction of the pair to rise from the beginning of July 2014 and the level of 1.0650).

Despite the fact that indicators OsMA and Stochastic on the monthly chart is still recommend selling on the 4-hour and daily charts, they turned to buy the pair USD / CAD. The likelihood of a further increase in resistance levels 1.2920 (EMA200 and the upper line of the descending channel on 4-hour chart), 1.2955 (EMA50 daily chart). Break of 1.2955 level will lead to a further strengthening of the pair to the 1.3100 level (EMA200 on the daily chart and Fibonacci level of 38.2%) in the rising channel on the daily chart with the upper limit near the level of 1.3300.

Alternative scenario implies a return to the downward trend after the breakdown level 1.2635, and USD / CAD pair will go to support level 1.2170 (EMA144 on the weekly chart and Fibonacci level of 61.8%).

On reversal of the downtrend in USD / CAD pair can speak only after the price consolidates above 1.3100.

Support levels: 1.2755, 1.2635, 1.2600, 1.2525

Resistance levels: 1.2920, 1.2955, 1.3100, 1.3185, 1.3200, 1.3300


Overview and Dynamics

May was marked by the almost universal appreciation of the US dollar, however, with the beginning of June, the US dollar's decline resumed, including in the pair USD / CAD. Oil prices also supported the Canadian currency. Crude oil is an important source of export revenue in Canada, and oil prices have a strong correlation with the Canadian dollar quotations. According to the IEA, global oil demand in 2016 and 2017 will amount to 1.3 million barrels per day increase, and this should support the oil rally that have a positive impact on the position of the Canadian dollar.

Interruptions in the supply of oil from different regions of the world, as well as the reduction of inventories in the US storages contributed to the recent dynamic growth in oil prices. The price of Brent crude, in particular, reached in June, the new yearly highs near the mark of 52.80 dollars per barrel. As reported today, the International Energy Agency (IEA), oil production outside OPEC in May fell by more than 650,000 barrels per day on the background of the fires in Canada. The May drop in world oil supply was the strongest since the beginning of 2013.

On Wednesday (14:30 GMT) the US Department of Energy was to publish official data on oil reserves in the vaults. Oil reserves in the US are 33% above the five-year average and near the highs of 1930. The price of oil may fall after the season of active car trips to the United States come to an end.

The decline in oil prices almost inevitably lead to the Canadian dollar and a reduction in prices.

Earlier, the Bank of Canada kept interest rates at 0.5% and raised its forecast for economic growth in Canada for 2016. In addition to meeting the world's major central banks and the decisions on rates in the US, UK, Japan leaves a number of important macroeconomic data for Canada in the week, including inflation consumer price index (CPI), published on Friday (14:30 GMT + 2). Index growth is expected in May by 0.5% (+ 1.6% yoy). With a positive outlook confirmation of the Canadian dollar strengthened, and vice versa.

Also, the Canadian currency in the pair USD / CAD in the week should support the Fed's decision on interest rates in the United States since according to most market participants the Fed is unlikely to raise rates in June.

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