USD/CAD Pauses As Crude Gains Over 20% From Lows
Chris Lemieux | Aug 31, 2015 03:09PM ET
The USD/CAD-0.25% pauses as crude gains over 20 percent from the recent lows, while having the best three-day gain in nearly 30 years.
Upward momentum in crude prices will help the Canadian dollar-0.25% rebound slightly, but the fundamentals still remain bearish . In all reality, $47 per barrel will not rid the bearish fundamentals within the energy space.
While keeping it all in perspective, the pop in crude prices is due to a series of headline factors as crude traded near levels not seen since the financial crisis.
First, the Energy Information Administration (EIA) reported that U.S. crude production declined in July. Falling a to a mere 9.3 million barrels, production is roughly 300,000 barrels from the peak. For the first half of 2015, an average of 9.4 million barrels were produced. That's not that optimistic.
There was also a headline suggesting that OPEC may have a meeting with producers to determine a "fair" price for crude.
What do I expect?
https://twitter.com/Lemieux_26/status/636971657064804352
Speculators try to front-run such events hoping to ride the momentum. These momentum pops tend to be self-sustaining as traders begin to cover their levered-shorts.
The market saw the same thing earlier in the year only to engage in another "transitory" breakdown.
The USD/CAD-0.25% is up big, and price action will likely test the consolidation channel, which will act as the first line of support. If price action closes underneath it, look for the pair to test support at 1.3090/1.31.
The speculative ride could last near-term, where the 200-4H EMA would be a great downside target. The 4H +/- DMI is showing a possible bearish convergence that would further suggest more downside.
Key resistance levels will act as upside target is crude begins to unwind, considering that USD/CAD-0.25% does not completely unravel. Minor trend support looks to be broken, and bulls will have to attempt to get back over that hump.
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