USD/CAD Struggles To Gain On A Stronger Dollar And Declining Oil Prices

A turn lower in oil prices and a recovery in the dollar index (DXY) back towards two-week highs failed to spur a rally in USD/CAD which has been consolidating in a range throughout the day.

WTI crude oil prices (USOIL) recovered in early day trading to reach a high of $44.06 but a sharp turn in the North American session has triggered a bearish continuation with prices falling to fresh six-week lows. Oil prices trade at important support as the bottom of a declining trend channel has come into play as well as a horizontal level at $44.19 which is relevant on a weekly chart. The declining channel has contained price action from a high posted in February and had previously triggered the recovery ahead of the May OPEC meeting.

The US dollar index turned higher following hawkish comments from Fed member Dudley. He backed Chair Yellen’s view that inflation was expected to rise to 2% targets over time and reiterated the risk of waiting too long to normalize policy. DXY turned higher on this remarks and continued to advance to last week’s highs where the index was last seen trading. A likely bullish engulfing candle print on a daily chart will tend to keep the dollar firm on Tuesday.

Fed member speeches throughout the week stand to cause volatility to the dollar pairs, especially with a light economic calendar in terms of US data. The next Fed member to speak is Chicago Fed President Evans at 19:00 EST today.

Although the dollar was the best performer in the European session, the loonie trades relatively unchanged versus the greenback. Combined with the bearish pressure seen in oil prices, the loonie has been resilient in today’s session.

Positioning in the Canadian dollar reached record levels in late May. Since then, CAD bears have been scaling back but at a small scale considering the announcement last week from the Bank of Canada that revealed intentions to tighten monetary policy.

Non-commercials were reported to hold the loonie net short by 88,595 contracts in the week to June 13th, down from 94,501 in the prior week. The weekly change was mostly attributed to a short covering although the position size remains above the prior record level which was set four years ago.

A range break in USD/CAD stands to clarify the near-term trend. Current range resistance is found at 1.3246 and support at 1.3211. in the event of a bullish break, strong resistance is seen at 1.3293 and had held the pair lower in a recovery late last week. Downside support in the event of a bearish break is found at 1.3173 which had held the pair higher last week following the tumble inspired by the BoC.

USD/CAD 4-Hour Chart

USDCAD 4H June 19

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.