Crude oil fell below $50 per barrel last Friday, after the International Energy Agency (IEA) reduced the demand outlook for crude this year and in 2018. The institution has also raised doubts about OPEC members’ commitment to comply with the production limitation agreement. In this regard, OPEC pointed out that the compliance rate has slid to 75% in July, the worst ever since the implementation of the production cut agreement. In the US, rig numbers increased to 768 – their highest since April 2015. Ironically, the US oil inventories have recorded its lowest since last October. The IEA’s report is therefore expected to weaken the Canadian dollar, which has a direct correlation with the price of crude oil.
The Canadian dollar had rallied sharply after the Bank of Canada lifted rates last month. However, the optimism may not last as the strong Canadian dollar seems to have a negative impact on the country’s exports. In the recent month, Canada reported a trade deficit unlike a surplus a few months earlier. Thus, analysts do not expect another rate hike in 2017. Additionally, huge long positions in the futures market also suggest the possibility of a profit booking in the Canadian dollar. While crude was losing ground, the French statistical organization INSEE reported upbeat non-farm payrolls data.
According to INSEE, the private sector employment jumped 0.5% q-o-q in June, compared with 0.4% in May and 0.1% above analysts’ estimates. It is the eleventh consecutive quarter of growth as tertiary-sector employment grew at a pace of 0.7%, compared with 0.4% in the first quarter. The robust French employment data are expected to keep the Euro stronger against the Canadian dollar.
After consolidating between 1.4830 and 1.4950, the currency cross has broken above the upper band of the range. The positive reading of the MACD histogram indicates bullish momentum. Additionally, the EURCAD pair has not violated the ascending trend line. That confirms the possibility of a continuation of the uptrend.
To gain from the probable uptrend, a long position would likely be taken by us in the OTC market. The entry and stop loss level would be 1.4980 and 1.4850. The long position would be sold near the next anticipated resistance level of 1.5080.
We may also purchase a call option to benefit from the uptrend. The entry would be made when the currency cross trades near 1.4980. An expiry date close to August 22nd would be chosen for the trade.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.
