Todays Move in WTI Crude could Mean Trouble for the Canadian Dollar

Today's Move in WTI Crude could Mean Trouble for the Canadian Dollar

Crude broke out above the downward sloping trendline of a triangle today. However, it also closed down 0.28% on the day. After breaking out, Crude turned lower on the day and moved back into the triangle, in negative territory for the day. This candlestick is a doji candle and is considered to be a candle of indecision.

Source: Tradingview. City Index

In contrast, USD/CAD continued its moved lower today (CAD higher) from the bearish engulfing candle put in last week. The pair is hovering around the 61.8% retracement level near 1.3148 from the July 19^th lows to the September 3^rd highs. Trendline support comes in roughly 50 pips lower near 1.3100.

Source: Tradingview, City Index

Crude and CAD typically move together, that is, when crude trades lower, USD/CAD trades higher (CAD lower). However today, as Crude reversed lower, CAD did not. To better illustrate this, below is a chart of WTI Crude and Canadian Dollar Futures (the futures trade in the same direction as Crude, as opposed to USD/CAD which trades inversely to crude). The correlation coefficient for the two assets is currently +.62.

Source: Tradingview, City Index

What happens tomorrow if Crude reverses its recent move higher and trades lower back into the triangle? The Canadian Dollar may trade lower with it (USD/CAD trade higher). On a 240-minute chart, price is diverging from the RSI, which is typically a signal of a potential reversal. Horizontal resistance and Fibonacci retracements come in between 1.3230 and 1.3260. As mentioned on the daily chart, support is near 1.3100.

Source: Tradingview, City Index

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