FX Weekly Special Report – USD Oil pressuring USD/CAD (14 Nov ’17)

Our most recent FX Weekly publication was recently updated.

USD/CAD turning back from Fibonacci retracementWe highlighted a Downgrade to Neutral for USD/CAD, as prices turn back from the 1.2915 high of October and 1.2625, (50%) Fibonacci retracement of the May-September fall.

In fact, downside risks are expected to continue into the coming weeks, as stochastics unwind overbought areas and the broad USD rally shows signs of exhaustion.

Coupled with the FX risk of a pullback in the USD, there are further pressures on USD/CAD.

 

 

As a commodity driven currency, the Canadian dollar also reacts to changes in Oil prices. When Oil prices rally, money managers increase their exposure in CAD. Likewise, when Oil prices fall, money managers reduce their exposure in CAD.

 

Oil prices continue to strengthenLooking at the most recent Oil chart, we can see a strong bullish trend developing. Both momentum studies and our proprietary Tension Indicator are positive. Our constructive stance is intact, and we anticipate Oil prices will remain strong into the coming weeks.

(The broader Energy Index is also benefiting from cross asset inflows. Portfolio managers are gradually reducing their exposure in US equities, and increasing exposure in Energy.)

 

 

USD/CAD to trade lower in the coming weeksTaking these factors into account – a corrective pullback in the USD and higher Oil prices – we see potential for USD/CAD to weaken towards 1.2485/00 in the coming weeks.

 



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