Crude oil prices fell sharply after the publication of the latest oil inventories from the EIA earlier today.
The report showed big builds for stocks of gasoline and distillates, but what surprised the most was the large spike in oil production to 10.25 million barrels per day which was significantly higher than 9.92 million from the previous week. Clearly, the data points to an imbalanced market and oil prices have responded by turning sharply lower.
Brent has now turned negative for 2018 while WTI isn’t looking great either. The falling oil price is bad news for the Canadian dollar, and good news for the USD/CAD, which has already been on the rise following last week’s publication of mostly better than expected US data.
With the US dollar rising, prices of buck-denominated commodities such as gold, silver and crude oil have been coming under pressure in recent days. Crude oil and the CAD/USD have therefore been dealt a double whammy. The CAD could further extend its declines in the event Friday’s Canadian jobs data disappoints expectations. Expectations are running low anyway as analysts expect the unemployment rate to have climbed to 5.8% from 5.7% and net jobs to have fallen last month by 2,000 after a bigger-than-expected rise of 78,600 the month before. The bigger risk therefore is if we actually see better results on Friday, in which case the USD/CAD could fall back a little.
But for now, the USD/CAD’s bearish trend looks to have ended. Once it broke out of its falling wedge pattern on Friday, I was interested in watching price return back to some broken resistance levels such as 1.2330, to see if they would now hold as support. But such has been the strength of the rally that we haven’t yet had a decent pullback. Indeed, yesterday’s red candle saw no bearish follow through as support at 1.2490 held firm on first etest.
The USD/CAD is now threatening to go positive for the year as it tests the 2018’s opening price level of 1.2568. If it goes green on the year having been red earlier, this would objectively make us turn bullish on the Loonie. Still, we wouldn’t lose sight of near-term resistance levels, however strongly we may feel about this pair. In this regard, 1.2630 is the next key level that the bulls need to take out. This was a previous support level, which is yet to be re-tested (on the daily time frame) after price broke below it. Above here, 1.2705 is the next possible resistance to watch out for, followed by the 200-day average, currently at 1.2770.
The previous highs at 1.2920 is where the big buy stop orders are likely to be resting – and I have a feeling that that is where price might want to push towards in the coming days and weeks. All that being said, however, I would be quick to drop my bullish view in the event the USD/CAD fails to hold its own above the 1.2330 support. In fact, you wouldn’t want price to get to this level now as it has already tested and held above the higher support at 1.2490 yesterday. Thus, if 1.2490 breaks down now, then one would seriously have to consider the bearish scenario.
USD/CAD Daily
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