Forex Alert! Loonie Poised To Benefit From Commodity Gains

The Canadian dollar has weakened significantly over the past year as the oil price shock surprised both many investors and central bankers.  The Bank of Canada has already lowered rates twice this year and many anticipate them to remain on hold for quite some time.  While many believe the excess supply and consistent production will keep oil prices lower, we are seeing a potential key technical move higher with oil and may see another major leg higher over the next couple of weeks.

Price action on the USD/CAD daily chart shows that recent slide accelerated once breaking below the 50-day SMA and is tentatively respecting the 100-day SMA.  This key support level may tentatively hold, but eventually we may see further downward pressure support a decline towards the 1.2750 region.

If commodity prices across the board are hit with major weakness, we could see USD/CAD rally towards the 1.3500 region.  Further upside may eventually stall out around the 1.3800 zone.

The Trade: Sell USDCAD at 1.3120 with a stop loss at 1.3220, and a take profit at 1.2820.  The Risk/Reward ratio is 1:3.

Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.

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