The price of USD/CAD has been in a consistent downward trend, however the past 6 to seven weeks price has moved sideways. Is the breakout coming or are expecting a reversal?
Is the Oil & CAD Link Weakening?
I was staring at the Crude Oil chart today and saw the price was breaking lower and forming new lows after experiencing some volatility.
Considering all week I have been focusing on correlations my mind immediately went to USD/CAD to see if price action was following along.
To my surprise it wasn’t.
In normal market conditions falling oil prices would weaken the Canadian dollar, pushing USD/CAD higher. But that’s just not what’s happening. The USD/CAD price is moving higher as USD remains bearish.
But that isn’t to say the correlation won’t return.
Oil Fundamentals
A recent OPEC report suggests that expectations of oil demand are going to grow, especially in Asia. Demand has been a hot topic of discussion as trade tariffs start to bubble in the background yet again, which could bring fresh volatility to the market.
That being said, demand growth can be a bullish sign if it can be paired with a reduction in production. However, if they have forecast demand then production could remain elevated.
Analysis suggests the demand is growing compared to last year because oil prices are much lower.
CoT Reports Support CAD Strength
The latest Commitment of Traders (CoT) report shows non-commercial traders are buying Canadian dollars, and positioning hasn’t yet reached extreme bullish levels. This suggests to me that there’s further room for CAD buying, adding opportunity for USD/CAD to continue lower.
Levels to Watch
As we can see the price of USD/CAD is forming a consolidation on the daily chart. If the price breaks through the lows we could expect a move down to the next level of support which can be found at 1.3250.
Final Thoughts for Traders
The CAD’s recent strength, despite weaker oil, suggests a shift in market drivers. With COT positioning, and technical levels aligning, USD/CAD could break lower in the short term if 1.3500 gives way.
For retail traders, the key will be to wait for a confirmed break, rather than guessing the move inside the range. If 1.3500 snaps, a move into the mid-1.34s could come quickly.