USD/CAD: Loonie Reacts To Sharp Rise In Oil Prices

Oil prices rose sharply on Wednesday as OPEC had reached an oil output agreement. USD/CAD showed resilience, however, as the exchange rate closed the day out for a marginal gain despite a single-day gain of over 8% in WTI crude oil prices.

The Loonie has strengthened today as oil prices are seen rising for a second consecutive session. The Canadian Dollar has outperformed its counterparts on Thursday to post the largest gains among the majors.

USD/CAD fell under pressure shortly ahead of the European close on Wednesday and gained downside momentum at the European open today. The pair trades at a pivotal area as the bottom line of a declining channel has come into play. The channel is seen on a 4-hour chart and has encompassed price action since the middle of the month.

A downside break would put the pair at risk of a broader correction as the November lows are seen within close vicinity and a channel break would likely lead to a break below the prior month lows. Bulls will want to see a turn in the current area to keep the broader uptrend intact.

WTI crude oil prices (USOIL) have regained the $50.00 price point in today’s session but resistance has come into play from prior highs of the year. Resistance seen around $51.64 triggered a turn lower in June and October. A high of 51.76 was posted today prior to a pullback, USOIL was last seen at $50.88 for a daily gain of 3.96%.

After posting a sharp move higher, the US Dollar index (DXY) turned lower today to wipe out the bulk of Wednesday’s gains. The index was last seen trading at 100.89 for a loss of 0.63% against the opening price of 100.86 yesterday. Today’s price action will negate Wednesday’s bullish engulfing candle and sets a bearish technical tone ahead of Friday’s jobs report.

The US non-farm employment change is expected to increase 165,000 on Friday while the unemployment rate is expected unchanged at 4.9%. The average hourly earnings are expected to rise 0.2% after a rise of 0.4% in the prior reading. The data may have a muted reaction in the markets as only a significant miss will cause concerns over a December rate hike. With labor markets seen at near full employment, inflation will be important, putting a spotlight on the average hourly earnings figure.

On a 4-hour chart, USD/CAD is seen trading slightly below the lower bound of the declining channel. The candle close will be important in assessing if a downside break has materialized. Further support at 1.3264 reflects November lows and a breach would suggest a broader turn has taken place. To the upside, the first level of resistance is seen at 1.3378 referencing last week’s low.

USD/CAD 4-Hour Chart

USDCAD 4H Dec 1

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About the author

Jignesh Davda

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.

Indices

NamePrice($)CommentChange($)Change %
S&P 5002,192+0.87+0.04%
NASDAQ5,256+4.55+0.09%
NYSE10,839+9.59+0.09%
FTSE 1006,730.72-22.21-0.33%
DAX10,513.35-20.70-0.20%
CAC 404,528.82-31.79-0.70%
EURONEXT 100872.00-5.61-0.64%
Nikkei 22518,426.08-87.04-0.47%
HANG SENG INDEX22,564.82-313.41-1.37%

Commodities

NamePrice($)Change($)Change %Comment
Light Sweet Crude Oil Futures,D47.48-0.01-0.02%
Gold Dec 161,175.70+8.80+0.75%
Silver Dec 1616.75+0.32+1.94%
Copper Dec 162.62-0.01-0.36%