Home Forex USD/CAD Rally Halts as WTI Breaks Out: What’s Next?

USD/CAD Rally Halts as WTI Breaks Out: What’s Next?

by SuperiorInvest
  • The IEA revised its 2024 oil demand growth forecast to 1.24 million bpd amid ongoing tensions in the Middle East.
  • WTI crude oil is peeking above its multi-month bearish channel, but traders may be hesitant to project continued strength after Friday’s big turnaround.
  • USD/CAD is pausing just below the resistance at 1.3540, but the bulls maintain the short-term momentum.

The market continues to grapple with heightened geopolitical tensions in the strategic Red Sea corridor, where escalating conflicts have disrupted global shipping lanes, but you wouldn’t know it by looking at the price action so far this year.

In this context, the International Energy Agency (IEA) has revised upwards its oil demand forecast, projecting an increase of 1.24 million barrels per day (bpd) in 2024, 180,000 bpd more than the previous forecast.

This review comes against a backdrop of ongoing tensions in the Middle East, particularly US strikes on Houthi targets in Yemen in retaliation for attacks on shipping, and attacks by the Iran-aligned Houthis in solidarity with the Palestinians. .

Additionally, the IEA outlook suggests a “comfortable and balanced” oil market for the year, despite rising tensions in the Middle East and challenges posed by extremely cold weather in the United States, which has caused operational disruptions to production. of North Dakota oil.

This forecast aligns with expectations for stable demand growth from the Organization of the Petroleum Producing Countries (OPEC), although the cartel forecasts dramatically stronger demand growth of 2.25 million bpd this year.

Crude Oil Technical Analysis – WTI Daily Chart

WTI Crude Oil Daily Chart

Fountain: TradingViewStoneX

West Texas Intermediate (WTI) crude oil prices look cautiously bullish amid today’s rally, but traders may be “once bitten, twice shy” when it comes to bullish breakouts after Friday’s failed rally out of their symmetrical triangle pattern and bearish channel. That day, oil prices rose from $73 to over $75 before reversing and ending lower on the day.

After such a violent turnaround that ended last week, this week’s resilience is particularly impressive. Going forward, bulls will first want to see if oil can close above the bearish channel, then will likely watch for a move above the 50-day EMA and last Friday’s high at $75 before getting comfortable with the possibility of a long-term reversal. finally be at hand. Meanwhile, a drop below $70 could signal a continuation of the multi-month downtrend, with room to move down towards the June lows of $67 in play after that.

Canadian Dollar Technical Analysis – USD/CAD Daily Chart

USD/CAD-Daily Chart

Fountain: TradingViewStoneX

Historically, the Canadian dollar has had a relatively strong correlation with oil prices, but when you look at it, that correlation has been much less consistent in recent years. From a fundamental economic perspective, the weakening correlation is likely due to the emergence of the United States as an oil drilling power, meaning that both sides of the currency pair have large exposure to fluctuations in the price of oil.

In any case, today’s rally in crude oil may be contributing to the pause in the USD/CAD rally, as is the 50% Fibonacci retracement of the November-December decline at 1.3540. That said, with only three relatively small days down in the pair so far this year, near-term momentum remains on the side of the bulls, and a break above the 1.3540 resistance could point to the bulls. upcoming Fibonacci retracements at 1.3625 (61.8%) and 1.3745 (78.6%) next.

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