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USD/CAD Technical Analysis: Oil Instability Favors Trend Resumption

USD/CAD Technical Analysis: Oil Instability Favors Trend Resumption

2016-11-29 18:10:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

- USD/CAD Technical Strategy: Upside Remains Favored Despite Bounce Off 50% Retracement

- Crude Oil Price Forecast: Crumbling OPEC Deal Agitates Oil Market

- Slew of North American & Oil economic data makes it tough for CAD to gain ground

Quick Fundamental Take:

The Canadian Economy continues to do little favors for those long the Canadian Dollar in the current environment. While the CAD has traded well against weaker currencies like the EUR & JPY in November, there is still very little hope in the near-term outside of an OPEC accord and consolidation of leading currencies right now (GBP & USD) for CAD to triumph.

On Tuesday, the Canadian economy recognized a worse than expected, albeit improved trade balance or current account of 18.3bn in Q3. Given persistent USD strength as seen via the DXY that was influenced by Tuesday’s strong real GDP, the Canadian Dollar continues to back-pedal against the greenback.

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The fundamental backdrop seems to favor more of the same, which is gradual CAD weakness against the USD as Oil looks unstable on a doubtful OPEC deal, homeland economic data is showing exports are not delivering the boost hoped for, and USD strength looks ready to persist. The rest of the week is packed with economic data for Canada with GDP on Wednesday and Employment numbers on Friday, which could increase the volatility of USD/CAD.

Having a Hard Time Trading USD/CAD? This May Be Why

Technical Focus:

D1 USDCAD: Clean Corrective Channel Within Broader Uptrend

USD/CAD Technical Analysis: Oil Instability Favors Trend Resumption

Chart Created by Tyler Yell, CMT

The Canadian Dollar has lost ground on Tuesday morning but continues to trade in a corrective channel after pushing off significant support from last week against the US Dollar. Namely, the 50% Fibonacci Retracement of the 2016 range at 1.3575.

The weakness displayed in the Candian Dollar has aligned with the trend shift that we’ve been focusing on since the price broke above the Ichimoku Cloud and was followed by the momentum line. We continue to favor upside based on both the charts and fundamental story explained above.

An additional component to favor the upside is the persistence of RSI(5) on the daily chart of USD/CAD above the 50 level. One way to utilize RSI is to divide the oscillator in half. A persistent move above the 50-point market or below the 50-point mark can provide you with a clear bullish or bearish bias respectively.

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As the price remains above the 50-point mark on RSI(5) and Ichimoku Cloud, the path of least resistance remains higher in our view. Also, we could be paving the way for an aggressive rise as we move from a leading diagonal to an impulsive wave ‘iii’ of ‘C’ in Elliott Wave terms. The leading diagonal view has been encouraged by the recent break to the 50% retracement that has been followed by what appears to be a corrective channel.

The recent price channel is not exciting, but it can set us up to be on the lookout for a breakout higher. The bias will remain as long as we stay above 1.2364, the post-election low, we’ll look to confirm the upside pressure on a break above the bearish channel drawn off the 1.3589 high on November 14.

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The current upside target is the November 14 high near the 50% retracement of the January-May range at 1.3589. If 1.3589 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838.

A few of the support levels that would need to break to change the tune from Bullish to Neutral is 1.3312, the 38.2% Fibonacci Retracement of the Jan-May range followed by the November 9 low of 1.3264 that was mentioned above.

Late November tends to provide thin trading, but over the past few years, USD/CAD has accelerated higher over December & January. We’ll keep a watch on this trend to continue as the charts favor further upside above 1.3264.

Key Short-Term Levels as of Tuesday, November 28, 2016

USD/CAD Technical Analysis: Oil Instability Favors Trend Resumption

T.Y.

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