- USD/CAD grapples to extend its gains on the back of subdued Crude oil prices.
- A firm breakthrough above 1.3600 could lead the pair to reach a 21-day EMA at 1.3620.
- 14-day RSI lies below the 50 mark; the 1.3550 level could act as key support.
USD/CAD struggles to extend its gains for the second successive day while US Dollar (USD) stays in the positive territory. The downbeat Crude oil prices reinforce the downward pressure on the Canadian Dollar (CAD). The USD/CAD pair trades higher around 1.3590 during the European session on Wednesday.
The USD/CAD pair finds the psychological level at 1.3600 as a key barrier. A firm break above the latter could inspire the bulls of the USD/CAD pair to explore the 21-day Exponential Moving Average (EMA) at 1.3620 followed by the 38.2% Fibonacci retracement level at 1.3840 before the major resistance at 1.3650 level.
The technical indicator Moving Average Convergence Divergence (MACD) for the USD/CAD pair signals a potential bullish trend reversal. MACD line lies below the centerline and crosses above the signal line. The crossover above the signal line suggests that the shorter-term moving average is gaining strength relative to the longer-term moving average, indicating a shift towards positive momentum in the pair.
However, the analysis suggests a dovish sentiment for the USD/CAD pair, with the 14-day Relative Strength Index (RSI) below 50. This implies a weakness in the pair, and it could lose ground. The mentioned support levels, including the major level around 1.3550 and the psychological support at 1.3500, are crucial markers to watch.
If the USD/CAD pair breaks below the latter, it might encounter further bearish pressure, potentially navigating toward the region around the previous week’s low at 1.3480.
USD/CAD: Daily Chart
The oil market has been a rollercoaster ride in the past few months, with prices experiencing steep drops and sharp rebounds. Recently, there has been yet another drop in oil prices, causing a stir in the market. As oil prices hover below 1.3600, all eyes are on the Federal Reserve’s upcoming decision and its potential impact on the oil market.
Let’s take a closer look at the current situation and how the Fed’s decision could affect oil prices.
Understanding the Drop in Oil Prices
First, let’s understand the reasons behind the recent drop in oil prices. One of the main drivers is the global oversupply of oil, primarily due to the COVID-19 pandemic. With lockdowns and travel restrictions in place, demand for oil plummeted, causing a surplus in supply. As a result, the Organization of the Petroleum Exporting Countries (OPEC) and its allies had to step in and implement production cuts to stabilize prices.
However, with the gradual easing of restrictions and the reopening of economies, demand for oil has started to recover. This led to OPEC and its allies agreeing to gradually increase production levels to meet the rising demand. But, as some countries are still struggling to control the spread of the virus, concerns over demand remain, putting pressure on oil prices.
Adding to the market uncertainties, the recent surge in COVID-19 cases in Europe and the US has reignited fears of another wave of lockdowns, potentially impacting economic recovery and oil demand.
Oil prices have also been affected by the ongoing tensions between the US and China, two of the world’s largest oil consumers. The ongoing trade disputes and sanctions have led to a decrease in oil imports from China, further weighing on prices.
Eyes on the Federal Reserve
With oil prices hovering below 1.3600, the upcoming Federal Reserve decision is crucial for the market’s direction. The Fed’s decision regarding interest rates and monetary policy will have a significant impact on the global economy and consequently, oil prices.
Currently, the Fed has kept interest rates near zero, and with the ongoing uncertainty in the market, it is expected to maintain this stance in the near future. However, any indication of a potential rate hike or reduction in economic stimulus could strengthen the US dollar and potentially cause a drop in oil prices.
On the other hand, if the Fed maintains its current stance and signals continued support for the economy, it could weaken the US dollar and provide some relief to oil prices.
Impact on Different Stakeholders
The drop in oil prices and the Fed’s upcoming decision have implications for different stakeholders in the market.
Oil Producers: The continued drop in oil prices is a cause of concern for oil-producing countries such as Saudi Arabia, Russia, and the US. These countries heavily rely on oil exports for their revenue, and a sustained decrease in prices will significantly affect their economies.
Oil Companies: The low oil prices could also challenge the financial stability of oil companies, particularly those with high debt levels. As prices remain low, these companies’ profitability will be impacted, and some may even face bankruptcy.
Consumers: On the other hand, low oil prices may benefit consumers, as it results in cheaper fuel prices and, therefore, lower gas costs. This can have a positive impact on consumers’ disposable income and potentially boost economic recovery.
Investors: With the current fluctuations in oil prices, investors need to carefully assess the market before making any investment decisions. It is essential to monitor the Fed’s decision and its impact on the market to make informed investment choices.
Practical Tips for Traders and Investors
As traders and investors navigate the constantly changing oil market, here are a few tips to consider:
– Stay informed: Keep yourself updated on the latest developments in the market, including OPEC decisions, economic data, and the Fed’s monetary policy.
– Diversify your portfolio: Invest in a mix of different assets to minimize risks and protect your portfolio from market fluctuations.
– Analyze market trends: Use technical and fundamental analysis to understand market trends and make informed investment decisions.
– Stay patient: With the current market volatility, it is essential to stay patient and not make impulsive decisions based on short-term price movements.
As oil prices continue to drop and hover below 1.3600, the Federal Reserve’s upcoming decision remains a crucial factor for the market’s direction. In addition, factors such as global demand, trade tensions, and the ongoing pandemic will continue to influence oil prices in the coming months. However, with the right information and strategies, traders and investors can navigate the market successfully. Remember to stay informed, diversify your portfolio, and analyze market trends to make the most of the current situation.