US$, USD/CAD & Oil

I’m back from a two week break and slowly getting back into some charting. There is a lot going on in our house for the next couple of weeks and so my regular updates won’t resume until mid to late January but, until then, I’ll be posting some updates with charts that cover some general themes. I posted a view of NZD/USD some days ago and this can be found through the following link. Today’s post is a look at how the US$, Oil and the USD/CAD finished up for the year and what technical levels are worth keeping in mind for this Trinity as we head into the New Year.

The US$ Index:

USDX yearly: the last two years have been good for the US$ and the two large bullish candles are a testament to that fact. There does seem to be a bullish descending wedge breakout in progress and a case for bullish continuation can well be made from that pattern. However, note how much of the price action seems to occur below the 100 threshold. I’m long on record as saying I want to see a bullish break and hold above this 100 psychological level before getting too excited about any long-term LONG US$ trades. I’m not suggesting this bullish breakout won’t happen. I’m just saying it hasn’t happened yet. The 100 level is the level, for US$ bulls and bears alike, to watch into the New Year.

DXYyearly

USDX monthly: this more expanded monthly chart shows the potential ‘Bull Flag’ that is still brewing here but the 100 level keeps giving this pattern some grief. Indeed, a bearish ‘Double Top’ could still just as easily evolve here:

DXYmonthly

USDX weekly: this chart shows the potential ‘Double Top’ more clearly. I’m watching for a clear break and hold out from the year-long 100-92.50 trading range, bullish or bearish!

USDXweekly

Oil:

Oil yearly: Oil is impacted by many factors including geo-political issues, the US$, supply& demand etc, and so technical analysis may seem a rather futile exercise. However, the story of Oil is almost the inverse of that for the US$:

  • Whereas the US$ has had two strong years, Oil has had two poor ones.
  • The US$ has printed tow decent bullish candles whereas Oil has printed two bearish ones.
  • The US$ has spent much of recent history below 100 but Oil has been mostly above 40 / 33.50.
  • The US$ seems to have made a bullish descending wedge breakout but Oil seems to have made a bearish triangle breakdown.
  • The US$ has resistance above current price from the 100 S/R level whereas Oil might get support from the $33.50 level. Only time will tell on both counts.

CLyearly

Oil monthly: Much might be made of Oil closing the year below $40 BUT, IMHO, the $33.50 is more of a ‘line in the sand’ level.

CLmonthly

Oil weekly: There is ‘Double Bottom’ potential here at $33.50 which has yet to play out. This $33.50 support level will be the one to watch into the New Year.

CLweekly

The USD/CAD:

USD/CAD yearly: The oil and gas sector contribute significantly to Canada’s GDP and so the fortunes of Oil impact that of the CAD$. The path of the CAD$ parallels that of Oil and, so, the behaviour of the USD/CAD currency pair generally trades inversely to Oil. Thus, whereas Oil has been punished for the last two years, the USD/CAD has put in two strong yearly candles. Oil has spent much of recent history above a threshold level of $40 whereas the USD/CAD has been below a threshold 1.30 for much of the same time.

LoonieYearly

USD/CAD monthly: the USD/CAD closed the year above the 61.8% fib of the 2002-2007 swing low move which is bullish.

LoonieMonthly

The monthly MT4 chart below shows that a potential bullish Cup ‘n’ Handle breakout may be in progress with the hold above the 1.30. The target for this bullish pattern is up near the 2002 high making for some convenient confluence. Any continued weakness with Oil price, as well as continued US$ strength, would help to develop this bullish USD/CAD pattern.

Note how current price action is trading at a previous S/R congested zone though. I have highlighted this on the chart with a rectangular box and the nearest whole number level at top of this range is at 1.40. I would be wanting to see a break and hold above this 1.40 region before being too confident that this bullish Cup breakout pattern will continue. IMHO, 1.40 level is the bullish threshold level to watch into the New Year. A close and hold back below 1.30 would be bearish and could also help develop more of a ‘Handle’ to go with this ‘Cup’:

LoonieMonthly

This MT$ chart above also shows the previous bullish triangle breakout move that completed some time ago.

Summary: the fortunes of the US$, Oil and USD/CAD are closely linked. Continued US$ strength would help to keep pressure on Oil and would support the USD/CAD. However, any failure of the US$ to continue with bullish follow-through above 100 might offer some reprieve for Oil, as well as other commodities, which would lend support to the CAD$ but hurt the USD/CAD pair. Levels to watch on these instruments include:

  • USD index: 100 and 92.50.
  • Oil: $33.50
  • USD/CAD: 1.40 and 1.30.

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