USD/CAD Breaks Down as Oil Soars, Trendline Support at Risk

USD/CAD TECHNICAL FORECAST:

• The Canadian dollar rallies at the start of the week, supported by surging oil prices
• Energy markets soar on Monday after OPEC+ announces unexpected move to cut crude production from May onwards
• USD/CAD breaks below the 1.3500 level and falls toward trendline support at 1.3420, the next major technical floor in focus

Most Read: Crude Oil Price Gaps Higher on OPEC+ Output Cut Compounding Supply Issues. Higher WTI?

The Canadian dollar rallied on Monday, boosted by widespread weakness in the U.S. dollar in the FX space, but more importantly by higher oil prices on the session – a top export for the Canadian economy. WTI and Brent soared more than 5% after OPEC+ unexpectedly announced a production cut aimed at stabilizing energy markets following wild swings in recent weeks.

OPEC+’s decision to slash output from May onwards will curtail worldwide supplies in the coming months, bolstering oil prices and creating a floor for the commodity in the event of a pronounced deterioration in the global economic outlook. This scenario is likely to be supportive of the Loonie, provided sentiment recovers further and volatility remains subdued.

Against this backdrop, USD/CAD fell more than 0.6% at the start of the week, breaking below the psychological 1.3500 level and falling towards trendline support at 1.3420, sitting slightly above the 200-day simple moving average, the line in the sand for bears and bulls. Price reaction in this area could offer important technical clues about the outlook, with a breakdown exposing 1.3370, followed by 1.3220.

While the bearish scenario seems more probable at the moment, a bullish turnaround should not be entirely ruled out. That said, if USD/CAD fails to breach the 1.3420-1.3400 floor and manages to rebound off of that region, buying interest could accelerate, setting the stage for a move towards the 1.3500 handle. On further strength, the focus shifts to the 50-day simple moving average.

USD/CAD TECHNICAL CHART

USD/CAD Chart Prepared Using TradingView