USD/CAD rises to a 19-month high as oil drops

The Canadian dollar fell against most of its major trading partners as oil prices gave back a third of its post-Christmas rally. With no major economic data expected this week from Canada, the moves in the loonie will likely take a queue from oil prices and the general risk play from the greenback.

Since West Texas Intermediate crude prices topped out at $76.90 in early October, the over 40% freefall has been for the most part a plunge with a couple dead cat bounces. Oil made a key low on Christmas Eve at $42.36 on thin volume. If we see price able to hold that level through to the New Year, we could see the Canadian dollar be ripe for a pullback.

Just a few months ago, calls for the Bank of Canada (BOC) to raise rates were high, the 25-basis point hike that was fully expected at the January 9th meeting was pushed off to the summer, but that could off the table as expectations for a cut are starting to materialize. If we do see both the Fed and BOC become more dovish, we could see that be a wash on the monetary policy front.

Price action on the USDCAD shows that the bullish trend became firmly in place once price recaptured the 50-day SMA. The rally is over extended and the Slow Stochastics is displaying extreme oversold conditions. If the bullish move provides one last thrust higher, we could see the formation of a bearish butterfly pattern around the 1.3720 level. Point D is targeted with the 200% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we could see a significant reversal target the 1.3400 region. If the pattern is invalidated, we could see a clear path towards the 1.3950 to 1.4000 zone.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya