There is an anomaly playing out in the currency markets right now. With Brent oil pushing past $100 a barrel amid the geopolitical crisis in the Middle East, the oil-correlated Canadian dollar should be surging, but instead, USD/CAD is trading higher, bouncing from recent lows and approaching the 1.4000 handle.
Why is the Loonie failing to catch a bid? It comes down to interest rate differentials and safe-haven flows into the US dollar. We break down the macro divergence driving this pair and the critical technical levels capping the current rally.
Key topics covered
- Oil correlation breakdown: The Canadian dollar is failing to benefit from the massive spike in oil prices as the safe-haven dominance of the US dollar is overriding Canada's traditional tailwinds.
- Interest rate premium: This is the core driver behind the USD/CAD rally. With the Fed sitting at 3.75% and the BOC holding at 2.25%, the premium makes the US dollar more attractive to carry traders. Furthermore, Canada's soft 1.8% inflation print lowers the odds of a BOC rate hike.
- Elliott Wave structure: Following the flag breakout, the pair completed a 5-wave impulsive leg down to the 1.3485 low. We discuss whether the current bounce is just a short-term correction or the start of a broader macro reversal.
- Overbought RSI resistance: The daily RSI is near the 70 overbought level, a territory it rarely holds without a fundamental disturbance. We identify the key resistance clusters where this rally is likely to exhaust.
USD/CAD scenarios & trade plan:
- Bearish (Sell the rally): Because momentum is stretched, the current bounce offers a prime short-term selling opportunity. The immediate resistance cluster sits at 1.3886 (the October swing low), with the line in the sand at the 1.3930 double top. A rejection here opens a downside target of 1.3750, offering a favourable risk-to-reward ratio for shorts with tight stops above the highs. If Middle East tensions de-escalate, a deeper flush could retest the 1.3485 lows.
- Bullish (Macro breakout): For the trend to officially reverse to the upside, buyers must secure a few daily closes above the 1.3930 resistance. Breaking this level invalidates the bearish structure and opens the door for a macro run toward the 50% Fibonacci level near 1.4150.
Are you selling the USD/CAD rally or focusing on a breakout above 1.3930? Share your thoughts in the comments.
This content is not directed to residents of the EU or UK. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.
ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Why is the Loonie failing to catch a bid? It comes down to interest rate differentials and safe-haven flows into the US dollar. We break down the macro divergence driving this pair and the critical technical levels capping the current rally.
Key topics covered
- Oil correlation breakdown: The Canadian dollar is failing to benefit from the massive spike in oil prices as the safe-haven dominance of the US dollar is overriding Canada's traditional tailwinds.
- Interest rate premium: This is the core driver behind the USD/CAD rally. With the Fed sitting at 3.75% and the BOC holding at 2.25%, the premium makes the US dollar more attractive to carry traders. Furthermore, Canada's soft 1.8% inflation print lowers the odds of a BOC rate hike.
- Elliott Wave structure: Following the flag breakout, the pair completed a 5-wave impulsive leg down to the 1.3485 low. We discuss whether the current bounce is just a short-term correction or the start of a broader macro reversal.
- Overbought RSI resistance: The daily RSI is near the 70 overbought level, a territory it rarely holds without a fundamental disturbance. We identify the key resistance clusters where this rally is likely to exhaust.
USD/CAD scenarios & trade plan:
- Bearish (Sell the rally): Because momentum is stretched, the current bounce offers a prime short-term selling opportunity. The immediate resistance cluster sits at 1.3886 (the October swing low), with the line in the sand at the 1.3930 double top. A rejection here opens a downside target of 1.3750, offering a favourable risk-to-reward ratio for shorts with tight stops above the highs. If Middle East tensions de-escalate, a deeper flush could retest the 1.3485 lows.
- Bullish (Macro breakout): For the trend to officially reverse to the upside, buyers must secure a few daily closes above the 1.3930 resistance. Breaking this level invalidates the bearish structure and opens the door for a macro run toward the 50% Fibonacci level near 1.4150.
Are you selling the USD/CAD rally or focusing on a breakout above 1.3930? Share your thoughts in the comments.
This content is not directed to residents of the EU or UK. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.
ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.