USDCAD breaks out ahead of Trump decision on Iran

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By :  ,  Financial Analyst

The USD/CAD, which tends to move inversely with oil prices, has finally broken out above the key 1.2900/20 resistance zone after spending several days in a tight consolidation range. The breakout comes ahead of US President Donald Trump’s key decision later on today on Iran. Trump must decide whether his country should withdraw from the international deal offering Iran relief from sanctions in return for dropping its nuclear weapons development programme.

With the Canadian dollar weakening, this might be an early indication that oil prices will fall when Trump makes his decision. The markets may have already priced in the potential withdrawal of the US from the 2015 agreement, or perhaps they are expecting to see some sort of a fudge deal which would effectively still allow allies to continue purchasing Iranian oil. Consequently, we may see a sudden drop in the price of oil after the decision is announced. In fact, this potential outcome should not come as major surprise as traders often employ or expect the “buy the rumour, sell the news” strategy.

If oil prices do fall later today then the USD/CAD could further extend its rally ahead of US CPI on Wednesday. In this case, the next bullish objective would be at 1.3050, the last support pre the latest breakdown. Above this level, the next levels of potential resistance or bullish objectives come in at 1.3150, 1.3150 and 1.3220.

However, if oil prices go significantly higher following Trump’s decision then this may cause the breakout on the USD/CAD to turn into a potential fakeout. Even so, the USD/CAD will still have to fall below the 1.2835 level before the bias turns decisively bearish in the short-term. This level was the low prior to the breakout, so price shouldn’t go below it if the bulls are to remain in control. 

Related tags: Brent Forex

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