USDCAD: what will CAD do with a broken oil market?

Intermediate

USDCAD is one of the most highly oil dependant pairs since both countries are major exporters of Crude oil, CAD being even more oil price dependant. Recent collapse of the oil market prompts to take a closer look at the short-term and long-term view.

Technical View

Looking at the weekly chart with applied Elliott Waves since 1994 we see that USDCAD is currently in wave 3 of wave V up. Long term view suggests that this pair will go much higher, potentially surpassing all time high of 1.6185 from January 2002.

Weekly view

USDCAD weekly

Starting from 2002, the world enjoyed rapid growth and high demand in developing countries. And the start of Iraq was, all those factors contributed to the start of the ‘Oil Bubble’. The demand for oil skyrocketed as well as its price. Rapid growth in oil demand pushed prices of oil and value of CAD, and USDCAD reached the lowest point before the 2008 crash at around 0.90, completing the ‘(a)-(b)-(c)’ correction move down. As growth returned in 2012, wave analysis shows a ‘I-II-III-IV-V’ formation up. Current count suggests we are in wave 3 of V up. The latest spike was prompted by the start of pandemic, leading to the collapse of the oil market.

1-hour view

USDCAD 1 hour

Elliott Waves show we are now starting wave iii of 5 after finishing wave 4 in a flat ‘abc’ correction. Now need the break and close above the red resistance area and downtrend line for confirmation of the next bullish move. This count is valid if 1.40 area holds without forming new lows. The FOMC meeting on Wednesday could create high volatility for the pair, so requires caution during those times.

Fundamental View

USDCAD weekly plus Oil

The current weekly chart is compared with the price of WTI (yellow line). It clearly shows the inverse correlation of USDCAD and WTI. While oil market reached bottom, the wave analysis suggests that CAD will only get cheaper, prompting us to consider that the oil market will not be the same as it once was even if OPEC+ and USA manage to fix it somehow. The current pandemic environment and lockdown create demand shortages and massive oversupply. Even if the cities start opening, it will take more time for borders to properly open and demand to return to normal levels. Canada exports its lion share of oil into USA, its main trading partner. With USA being so seriously hit by the pandemic, the outlook for trade is negative at the moment.

As Bank of Canada followed the FED and lowered their interest rates to their lowest levels, currency is at a very vulnerable point with oil prices down as well. Considering recent developments, it is unclear when the interest rates can be raised again. With all of this, they could be forced to employ even more serious QE measures, simply having no other options left. Flooding the market with cash to sustain it. That is pretty much what the rest of the world is doing right now. So, the outlook for CAD remains quite bleak.

Overall, we are waiting for lockdown easing measures to help jump start the consumption again. But that will take time and with Canada’s closest trading partner, USA, being the worst place hit by the virus right now, the timelines are very uncertain.

Good Luck and Stay Healthy!

Editor

Anton is an accomplished Director at Markom Development Ltd where he combines cross functional competencies in staff management, operations planning, customer retention and strategy development. BU... Continued

Comments on this analysis

Your email address will not be published. Required fields are marked *


Latest Related News

US Dollar sending mixed signals

Negative on Dollar Index (DXY) and positives on Euro (EURUSD)Euro future holds weekly support (EURUSD)Fresh buy signal on Dollar-CAD (USDCAD) connects with weakness in oil Continued

Q1/Q2 Elliott Wave views for the Forex Majors – Exclusive interview with Jim Martens!

Here is an in-depth interview with Jim Martens, Elliott Wave International's (EWI) Senior Currency Strategist and editor of the trader-focused Currency Pro Service. In this interview, we will discuss the Major currency pairs, including EURUSD, the US Dollar Index (DXY), GBPUSD, USDCHF, USDJPY, AUDUSD and USDCAD. Here is a link to a free report on trading FX with EWI. It’s normally $79 and not available on… Continued

WTI prices in 2020 and outlook for 2021

The year 2020 was a major crisis for oil prices as the COVID-19 pandemic destroyed demand with economies shutting down. According to IATA, passenger demand for air travel fell in February by 80% in Europe and USA and by 67% in Asia Pacific region. Prices collapsed in March to an unprecedented historic low. Oil practically became worthless for a short period of time. As OPEC+… Continued

Global Markets Outlook 2021

Initial Parameters: Chart analysis is technical and taken from medium-term historical patternTechnical projections based on a twelve-month time horizonTargets set are based on the most recent, significant technical adjustmentAnalysis is based on Elliot Wave and Fibonacci techniquesTechnical analysis only guides; exogenous factors can shock any marketMarkets, being capricious, forecasts are subject to revisionFundamental analysis can be commissioned on requestEquity sector analysis is thematic United States… Continued

US Dollar ends 2020 still very weak!

Major reversal on EuroPound Breaks upUS Dollar-CAD fails at major resistanceKiwi support rises Continued

Forex Brokers in your location


SIGN UP

72% of retail investor accounts lose money when trading CFDs with this provider.


SIGN UP

74-89% of retail investor accounts lose money when trading CFDs with this provider.


SIGN UP

75% of retail investor accounts lose money when trading CFDs with this provider.


SIGN UP

76.4% of retail investor accounts lose money when trading CFDs with this provider.