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USD/CAD Jumps above 50-Day Moving Average as Oil Drops on OPEC News

USD/CAD Jumps above 50-Day Moving Average as Oil Drops on OPEC News

Tyler Yell, CMT, Currency Strategist

Canadian Dollar Rate Forecast Key Takeaways:

  • The ONE Thing: Technical picture shows a breakout to the upside may be in the works. The Canadian Dollar has been an underperformer when compared to the Australian Dollar and the recent drop for CAD to two-week lows may show there is more pain for CAD bulls and more upside for USD/CAD in the near-term.
  • The Canadian Dollar maintains a strong correlation to WTI crude oil, which has recently pulled back on news that OPEC and its allies are looking to increase oil production. At the same time, the US Dollar is strengthening due to the economic-stability concerns in the EU that are focused on Italian politics.
  • Crude oil hit a wall as OPEC, and its allies are said to increase production while US inventories further swelled by the most since February.

Two-Week Lows for CAD As Oil Breaks Down

The Canadian Dollar was not able to hold up against the broadly strong US Dollar making a favorable cocktail for USD/CAD bulls. Adding to the picture, OPEC announced that they’re likely to increase production in the second half of 2018, which took the price of highly correlated crude oil lower. The move in crude added up to four consecutive days lower and appears to be helping support USD/CAD higher.

From a broad perspective, JPY strength emerged this week on renewed trade tensions and among the commodity bloc, the Australian Dollar broadly rose after RBA chief, Philip Lowe sided with Xi Jinping in the trade negotiations between US & China.

Falling Crude Oil May Boost USD/CAD

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Data source: Bloomberg

Key Technical Levels for Canadian Dollar Rate to US Dollar:

  • Resistance: C$1.2998 May 8 High
  • Spot: C$1.2965
  • Support: C$1.2816 50-Day Moving Average

USD/CAD Daily Chart: Canadian Dollar Breaks Down (USD/CAD Higher) After Consolidation

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Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

USD/CAD looks to be heading higher on a hold above the 50-day moving average (1.2816), and the Ichimoku cloud. The Canadian Dollar rate had held up well against the strengthening US Dollar while Crude Oil was rising. Unfortunately for CAD bulls, news broke late in the week that OPEC and its allies, collectively known as OPEC+ is looking to increase their supply and roll-back production curbs in H2 2018.

Traders with a longer-term bullish view of USD/CAD given the move of US Dollar Index to 4-month highs on the EUR weakness should hold 1.2782, the May 21 pivot low as key support.

Bullish targets should focus on the March high at C$1.3125. From an essential technical analysis perspective, RSI(5) is showing bullish momentum through higher lows alongside price finding support at Ichimoku cloud with the lagging line also breaking higher.

Not familiar with Ichimoku? You’re not alone and in luck. I created a free guide for you here

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators,and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.