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The US dollar has moved above its trend defining a 200-day moving average against the Canadian dollar at the start of the week as the greenback firms and OPEC leaders agreed to an output increase of the weekend.
After a quick ministerial meeting last weekend, OPEC+ agreed to a plan to increase production by 400k barrels per day in monthly increments through year-end. Last year, OPEC cut production by a record 10 million barrels per day (bpd) amid a pandemic-induced slump in oil demand.
Goldman Sachs believes this will be bullish for the oil market as it adds some certainty for investors. The investment bank also maintained its price forecasts, which sees Brent Oil hitting $80.00.
The price of Brent crude oil is up 43 percent this year to almost $74 a barrel. At the same time the Canadian dollar hit a multi-year high against the greenback, however, the USDCAD pair has lost around 600 points recently due to a recovery in the US dollar and a pullback in oil price.
Things do look bearish for crude oil at the moment, as fears of the COVID-19 Delta variant has caused a huge early-week to decline in oil prices. It is important to note that the Canadian dollar has a strong price correlation with oil price due to the nation of Canada being highly reliant on oil prices as it is a commodity rich nation, so the price decline in crude will be weighing heavily on the Loonie.
High levels of positive sentiment towards the USDCAD pair has dropped, with 57 percent of market participants now bullish. Last week 76 percent of traders predicting more gains.
Now sentiment has started to neutralize it could suggest that the USDCAD pair is close to reversing. We must also consider the pair’s 200-day moving average will be critical this week.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern appears to have been invalidated, with the invalidation target likely to take the pair towards the 1.2700 area.
It is noteworthy that significant amounts of bearish MACD price divergence have formed during the latest price rise and extends towards the 1.2480 support area.
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USDCAD Medium-Term Technical Analysis
The USDCAD pair has started to trade above its 200-day moving average. Multiple days spent about the 200-day MA would be a big buy and could cause a rally towards the 1.3000 area is possible.
The USDCAD pair has also formed large amount of bearish RSI price divergence, which extends towards the 1.2300 support level.
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