USD/CAD: eyes on price of oil, capped below the major ascending channel

  • USD/CAD capped on upside reversal below the major ascending channel.
  • Eyes on the price of oil and Iran/US relations.

It has been a bare week on the calendar for the Canadian dollar apart from a handful of housing data. There was an improvement in housing starts and building permits and an inline housing price index. Markets have noted that the BoC has dropped their hawkish bias, maintaining a bias a focus on household spending, oil markets, and global trade uncertainty.

However, in the recent session's the Funds has dropped in the lead into the Fed next week, following a dismal U.S. Nonfarm Payrolls, a more solid Canadian jobs report and then a disappointment in U.S. CPI hammered the nail in the coffin down to 1.3238. There has been a focus back to trade this week as well as geopolitics following the Iranian noise,  following reports of a tanker incident in the Gulf of Oman off the Iran coast which lead to a response from President Trump tweeting, "It is the assessment of the U.S. government that Iran is responsible for today's attacks in the Gulf of Oman...." and U.S. Secretary of State Mike Pompeo, who addressed the nation just before the closing bell, blamed Iran for the attacks and said the U.S. would take the issue to the U.N. Security Council, warning Iran that the U.S. "will defend our forces."

Subsequently, the price of oil has been back on the offensive which has seen a mixed response in the Loonie, initially rising vs the dollar to 1.3301 the overnight low, before dropping back vs the greenback to current levels at 1.3327 ahead of the Tokyo open.

"This increases the tension that has been building in recent months on various fronts in the Middle East, as well as raising the spectre of military action and the prospect of disruptions to oil trade in the region. This latest issue sets the stage for a tense meeting when OPEC members gather in Vienna later this month," analysts at TD Securities explained, adding, "The lack of a confirmed date suggests tension bubbling away between Saudi Arabia and Iran. Amid all this, OPEC’s monthly oil report showed lower estimates for demand. It said international trade tensions were already hurting demand. However, it still expects a tight market in the H2 2019 to cut inventories."

USD/CAD levels

The price has been rejected just below the rising channel's prior support line and has moved into a consolidation while the 4HR stochastics has moved out of overbought territory and price touching the hourly rising support line twice, capped at around 1.3345. The 200-D EMA has been relatively supportive on the downside at 1.3270 meeting 17th April lows. 1.3070 marks the 2019 lows.

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