Oil prices dropped over 3% today but USD/CAD failed to gain as the correlation between the two products has been weakening since the middle of the month. While oil prices have been volatile on the back of OPEC oil output talks, volatility has subsided in the currency pair.
The exchange rate was previously trading in a tight range as the Dollar has been rallying since the US elections while oil prices had strengthened. This week, oil prices have corrected lower while the Dollar has also been in a correction lower.
While the correlation between oil prices and USD/CAD has not been strong as of late, volatility is expected to pick ahead of Wednesday’s OPEC meeting in Vienna. There have been some doubts that an output agreement will be made tomorrow, resulting in a decline in oil prices. A failure to reach an agreement would tend to put further pressure on oil prices and trigger a bullish leg higher in USD/CAD.
Also weighing on the exchange rate will be the weekly crude oil inventories released on Wednesday as well as GDP figures out of Canada scheduled for release at 0.8:30 EST and ADP non-farm payroll figures out of the US at 08:15 EST.
Positive US Data today failed to have a bullish impact on the Greenback. The second estimate of third-quarter GDP indicated a rise of 3.2% versus an expected rise of 3.0% and against a rise of 2.9% in the first estimate. The Conference Board reported consumer confidence to rise to 107.1 for November, reflecting the highest level since mid-2007. Analyst expectations were set at 101.3 and the prior month was revised up to 100.8.
The current account deficit in Canada was reported to decline to $18.3 billion CAD in the third quarter, from a revised $19.0 billion CAD in the second quarter. The American Petroleum Institute (API) reported a draw of 720,000 barrels against an expected build of 600,000 barrels, oil prices were relatively unchanged following the release.
On a 4-hour chart, a bearish engulfing candle printed during early North American trading has wiped out gains from the first half of European trading. Follow through has not been seen as the pair hold above the daily opening price. A daily close near current levels would serve to print a bullish inverted hammer. The pair continues to correct withing a flag pattern that extends back to highs posted near the middle of the month. There is potential for a breakout of consolidation on the back of volatile movements expected in oil prices. Upside resistance at 1.3524 reflects the spike high posted during the US election. A break above the level would also accompany a break of the flag pattern to signal a bullish continuation. Support is found at 1.3378 referencing last week’s low.