Market update: USD/CAD slides as oil surprisingly follows suit on potential US-Venezuela oil deal

USD/CAD continued its slide started on Friday pushing further away from the 1.3700 mark. Surprisingly this has come about as oil prices have struggled as well following a 5% gain on Friday to close the week on a high.

Risks facing USD/CAD in the week ahead

The Bank of Canada (BoC) like many other central banks globally, is keeping a close watch on geopolitical developments, which could have a knock-on effect on inflation. This comes not long after warnings from BoC deputy governor Nicolas Vincent who warned that supply shocks, limited competition and technology could have shifted the pricing landscape permanently. Deputy governor Vincent also said he could envision firms continue to increase prices at larger and more rapid rates which is a worry moving forward.

Canadian inflation data is due tomorrow and will provide some insight with consensus for year-on-year headline inflation resting at 4%. The BoC will no doubt be looking for a print of 4% or lower given the increases the headline figure has seen since printing its year to date low at 2.8% in June. An acceleration tomorrow could see the rate hike expectations for the BoC hawkish repriced, which could see USD/CAD back toward the 1.3500 psychological level.

The US is seeing a slight slowdown in high impact risk events this week with the biggest one likely to be retail sales data due for release tomorrow. This could be a massive day for USD/CAD this week before cooling ahead of the BoC rate decision next week.

Technical analysis USD/CAD

USD/CAD failed to print a new high at the back end of last week after finding support at the 20-day Moving Average. We have since seen a pullback as the US dollar took a breath to start the week with Canadian inflation and US retail sales ahead.

The overall trend does however remain bullish with a daily candle close below the 1.3570 swing low from last week needed for a change in trend to occur. That in theory could bring the ascending trendline into play which then could provide some impetus for the bulls to return and eye a fresh high or a new upside leg.

Alternatively, a break of the trendline to the downside opens a push lower toward support at 1.3370 before the 1.3250 level comes into focus.

USD/CAD daily chart

IG client sentiment

Taking a look at the IG client sentiment data and we can see that retail traders are currently net short with 61% of traders holding short positions.

WTI oil outlook

WTI ended the week with a roar printing a Morning Star candlestick pattern, hinting at further upside this week. This however did not materialise today as oil has struggled to push on helped in part by news that the US and Venezuela could soon reach a deal to ease sanctions if a Presidential election date is set. A deal could be signed as early as Tuesday and may be worth monitoring as it could see oil prices slide lower on any announcement.

Meanwhile, potential pressure on oil prices from the conflict in the Middle East have thus far remained at bay as global diplomats attempt to stem the tide and prevent a spread. Another area that should be monitored the longer the tensions in the Middle East continue should the Straight of Hormuz which is a chokepoint for nearly 20% of the world’s oil.

For now, though it appears market participants are happy with the efforts to prevent a wider Middle East conflict and could mean the technical may prove to be a more reliable than they have been of late.

Key levels to keep an eye on

Support levels:

• 85.00
• 83.80
• 82.00

Resistance levels:

• 87.86
• 90.00
• 92.42

Oil daily chart

_{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}