Canadian dollar drifting to familiar levels

Alan Penny

9 April 2019

3 min read

Over the last several weeks, we have seen the Canadian dollar go back and forth in the same general area, carving out a nice range against the US dollar. This makes a lot of sense, because there are various economic concerns when it comes to Canada, but the bullish case of course always goes back to what’s going on in the crude oil market, which has been very bullish.

Previous triangle

The market recently had a significant triangle form, as marked on the chart. The triangle should now be supportive where it was once resistive in the form of a downtrend line. We have in fact seen buyers return to this market once it gets close to the 1.3250 level or so. That being the case, as we approached this area during Tuesday trading it is very likely that we will see some interest in this general vicinity. However, not much has changed from a fundamental standpoint so it would make perfect sense to simply meander in this general vicinity.

61.8% Fibonacci retracement level

The 1.3250 level also features the 61.8% Fibonacci retracement level from the break out move. That of course will attract a lot of technical traders and could be part of the reason we are seen so much in the way of interest in this area. Ultimately, when we look at this area it’s easy to see why there would be some interest not only based upon that but the fact that we have seen a recent bounce so therefore there is going to be a certain amount of “market memory” in this region.

We have seen a lot of choppiness on short-term charts in this area, and it should also be noted that the recent highs have been a bit lower. This could be a small problem but overall it’s very likely that this level continues to attract interest.

usd/cad chart


Crude oil markets

Overall, the crude oil markets have been very bullish but they are approaching major resistance areas. This is true in all grades that I follow, but most importantly the WTI market is close to the $65 handle. That suggests that we could get a little bit of a pullback in the crude oil market, and that will typically work against the Canadian dollar as it is a proxy for crude oil and most currency traders will trade right along with it.

That being said, the reality is that the United States is now the world’s largest producer of crude oil. However, old habits die hard so of course a lot of people will still use the Loonie as a way to trade crude oil without switching brokers or markets.

The main take away

The main take away of course is that we should see support in this area, and then the triangle should hold as support. If it does, then it sets up a nice buying opportunity off of a bounce. However, if we break down through the triangle it’s very likely that we will go much lower, perhaps to the 100% Fibonacci retracement level, and then possibly even the major uptrend line that I have drawn which is now closer to the 1.30 level.

Written By
Alan Penny

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