USDCAD - OPEC Meetings, Positive Correlations & Shorts
So beginning with fundamentals, this is going to be an interesting pair to watch this week with the OPEC Meetings as well as the crude oil inventories on Wednesday. The discussion on oil being the most volatile topic as the OPEC represents 40% of the worlds oil supply alongside other news events such as FOMC talk and various other data releases.
Doing bit of research on oil, I found something quite strange and intriguing. So if you are unaware of the correlation between Gold and USD, being a negative correlation i.e when the dollar strengthens, the price of Gold drops. The same goes for the commodity oil and the US dollar. HOWEVER, in recent times we saw both the DXY and Oil prices rally higher. Now this rarely occurs and if I am not mistaken, this positive correlation we saw was the 11th time in history that we've seen this.
With that in mind, I was slightly hesitant on whether or not the positive correlation and rally higher would continue, but it seems to have been a temporary correlation and 'trend' if you will, seeing prices of oil surge from $63.25 per barrel to $64.69 at the time of writing this article, as well as we've seen the dollar weaken and USDCAD tank to the downside.
I am going to come back to this but I'd like to jump into the technicals. So starting on the weekly timeframe and looking left to the beginning of 2016 where we saw a massive impulsive downside move, we can see we have been making lower high swing points in the bigger picture. These impulsive moves are accompanied by a slow & steady retracement to the upside, creating new lower highs followed by another impulsive move and we can now expect a similar move potentially. So what we are able to see is at the beginning of September 2017, we began ranging in a corrective ascending channel. Dropping down to the daily timeframe we can see multiple higher highs and higher lows being created. However, around the 7th of March we created a 3 pin pattern signalling a reversal and a new lower high created with an expected lower low to follow.
We also had the rejection of the 71% Fibonacci level in the green block annotated " 61.8/78.6 Retracement Zone " with the bottom being the 61.8 and the top being the 78.6 Fibonacci level. Putting the EMA's on, we can see the bearish crossover on the daily timeframe and lower as well as the break below the EMA's. The descending trend line is also being respected as well as the counter ascending trend line was broken, retested and price spiked to the downside. I currently have a short running from 1.33745 with +/- 65 pips profit and risk free.
We have also managed to close below the monthly key level with substantial bearish pressure and I expect further decline with CAD strength coming into play with OIL rising and the DXY (Dollar Index) set for a decline. The green rectangle is an area of support I'd like to see broken before a further continuation of price going lower.
Jumping back to the research and we can see that we've reached our yearly high and we are due for a pullback however price is still surging prior to the OPEC Meetings. I am short on USDCAD as of now but I will be vigilant of the volatile news as well as having read various reports stating the oil market is over supplied and is due for a drawback/retracement. There are also reports of Venezuelas halted operations and supply losses from both Venezuela and Iran and if this continues we can see downside for oil, which we have been anticipating for quite some time. This would also pull USDCAD higher in the process but I do not see this happening as of yet with the DXY playing out as expected, seeing the Dollar weaken.
I will be posting my oil chart after the article to my ideas to use in alignment with USDCAD. Remember, there is a NEGATIVE correlation between the two and always remember risk management and only trade in alignment with your own analysis and never follow blindly. Thank you for reading and have a great trading week further !
Doing bit of research on oil, I found something quite strange and intriguing. So if you are unaware of the correlation between Gold and USD, being a negative correlation i.e when the dollar strengthens, the price of Gold drops. The same goes for the commodity oil and the US dollar. HOWEVER, in recent times we saw both the DXY and Oil prices rally higher. Now this rarely occurs and if I am not mistaken, this positive correlation we saw was the 11th time in history that we've seen this.
With that in mind, I was slightly hesitant on whether or not the positive correlation and rally higher would continue, but it seems to have been a temporary correlation and 'trend' if you will, seeing prices of oil surge from $63.25 per barrel to $64.69 at the time of writing this article, as well as we've seen the dollar weaken and USDCAD tank to the downside.
I am going to come back to this but I'd like to jump into the technicals. So starting on the weekly timeframe and looking left to the beginning of 2016 where we saw a massive impulsive downside move, we can see we have been making lower high swing points in the bigger picture. These impulsive moves are accompanied by a slow & steady retracement to the upside, creating new lower highs followed by another impulsive move and we can now expect a similar move potentially. So what we are able to see is at the beginning of September 2017, we began ranging in a corrective ascending channel. Dropping down to the daily timeframe we can see multiple higher highs and higher lows being created. However, around the 7th of March we created a 3 pin pattern signalling a reversal and a new lower high created with an expected lower low to follow.
We also had the rejection of the 71% Fibonacci level in the green block annotated " 61.8/78.6 Retracement Zone " with the bottom being the 61.8 and the top being the 78.6 Fibonacci level. Putting the EMA's on, we can see the bearish crossover on the daily timeframe and lower as well as the break below the EMA's. The descending trend line is also being respected as well as the counter ascending trend line was broken, retested and price spiked to the downside. I currently have a short running from 1.33745 with +/- 65 pips profit and risk free.
We have also managed to close below the monthly key level with substantial bearish pressure and I expect further decline with CAD strength coming into play with OIL rising and the DXY (Dollar Index) set for a decline. The green rectangle is an area of support I'd like to see broken before a further continuation of price going lower.
Jumping back to the research and we can see that we've reached our yearly high and we are due for a pullback however price is still surging prior to the OPEC Meetings. I am short on USDCAD as of now but I will be vigilant of the volatile news as well as having read various reports stating the oil market is over supplied and is due for a drawback/retracement. There are also reports of Venezuelas halted operations and supply losses from both Venezuela and Iran and if this continues we can see downside for oil, which we have been anticipating for quite some time. This would also pull USDCAD higher in the process but I do not see this happening as of yet with the DXY playing out as expected, seeing the Dollar weaken.
I will be posting my oil chart after the article to my ideas to use in alignment with USDCAD. Remember, there is a NEGATIVE correlation between the two and always remember risk management and only trade in alignment with your own analysis and never follow blindly. Thank you for reading and have a great trading week further !