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.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023.

His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, 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 CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.