Loonie Strengthens as Crude Rallies Above $50 per Barrel

Loonie Strengthens as Crude Rallies Above $50 per Barrel
April 3, 2017

A slowdown in inflation and decline in the price of crude oil kept the Canadian dollar in a bear orbit for the past one month. On the other hand, positive economic data assisted the Greenback to rally against the Canadian dollar. Since February 27th, the USDCAD pair had rallied from a low of 1.3178 to a high of 1.3534. Less than anticipated hawkish stance of the US Fed triggered a correction in mid-March. That brought the USDCAD pair down to 1.3310 levels. We anticipate the USDCAD pair to decline further on the basis of facts given below.

According to Statistics Canada, the economy expanded 0.6% m-o-m in January, up from 0.3% last month. The reported GDP growth rate was twice the expectation of analysts.

The price of crude oil has once again closed above $50 per barrel, from a low of $47.09 traded last Monday. Canada, which earns considerable revenue from the export of crude oil, is one of the main beneficiaries of the price rise.

In the US, consumer sentiment index reading declined to 96.9 in March, from 97.6 in the previous month. Analysts expected the University of Michigan’s (UoM) consumer sentiment index reading to be 97.8.

It can be noted that the unemployment claims in the US were 258,000 in the week ended March 25th. It was lower than previous week’s figures of 261,000, but higher than analysts’ estimates of 244,000.

The Bureau of economic analysts reported Friday a 0.1% m-o-m increase in personal spending in February, compared with 0.2% growth in the earlier month. Analysts had expected a 0.2% increase in personal spending. Thus, considering the impressive GDP growth of Canada and rally in the price of crude oil, we forecast a downtrend in the USDCAD pair.

The USDCAD pair is forming lower highs as shown in the chart below. The descending stochastic oscillator supports a bearish view of the currency pair. The immediate resistance and support levels are 1.3380 and 1.3120. Thus, considering the sellers’ upper hand, we can anticipate the pair to move downwards.

USDCAD - Technical Analysis - 3rd April 2017

By opening a short position near 1.3340, with a stop loss order above 1.3490, a trader can look forward to gain from the probable decline of the USDCAD pair. The take profit order for the short position can be placed near 1.3120.

As far as a binary trader is concerned, a put option, with a validity period of one week, can be bought when the pair trades near 1.3340. Such a setup would enable a trader to gain from the currency pair’s decline.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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