USDCAD Bullish Divergence Points to 1.35 as Crude Oil Recovers

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Written By: Mircea Vasiu
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    Summary:
  • USDCAD started consolidation on the right shoulder of a head and shoulders pattern. The bullish divergence with the RSI reinforces the bullish thesis.

The USDCAD pair was the one that reacted the most to the coronavirus pandemic. As crude oil dipped in April to negative territory, the CAD followed.

However, recent developments both from the Bank of Canada and OPEC made it possible that the USDCAD pair quickly reversed the spike higher seen in April. In fact, it was fully retraced, and now the pair seems to have started a consolidation as the right shoulder of a head and shoulders pattern.

Strong Crude Oil Comeback Helps

The Canadian Dollar is positively related to the crude oil price. Effectively, it means that any meaningful move higher on the crude oil price has a direct effect on the CAD too. Or, if the crude oil price declines, the CAD follows.

The chart below perfectly shows that the correlation held during the 2020 pandemic. Hence, we can assume it will hold as well moving forward.

At the start of this week, the world god well-deserved news. A vaccine developed by Pfizer and BioNTech shows promising preliminary results. It is for the first time during such an advanced test phase that the world found that a vaccine is quite closer – in many cases, closer than most expected.

The markets’ reaction showed the joy of receiving such news. One of the markets that bounced the most was the crude oil price, as strong demand lies ahead for 2021.

However, until a vaccine is available means some more months of the same old lockdowns, second wave infections, etc. In other words, the price of oil may consolidate, and with it, the USDCAD pair too.

USDCAD Consolidates on the Right Shoulder

The 1.30 acts as a crucial level for  the USDCAD pair. As such, the bullish divergence formed at the level acted as a signal that the right shoulders’ consolidation started. Bulls may want to stay long with a stop at 1.2950 and a take profit on the projected neckline at 1.35.

USDCAD Price Forecast

Written By: Mircea Vasiu

Mircea, MBA in International Business graduating Magna Cum Laudae, trades for a living and contributes to various financial publications for more than six years. He writes about macroeconomics, stock indices, currencies, and most recently ETFs and individual stocks. For the past decade, he’s involved in everything trading related, mostly in the currency market, both with manual and algorithmic trading.

Published by
Written By: Mircea Vasiu