USD/CAD, Crude Oil Forecast: USD/CAD Rally Pauses as WTI Breaks Out

USD/CAD, Crude Oil Key Points

The IEA revised its 2024 oil demand growth forecast up to 1.24M bpd amidst ongoing tensions in the Middle East.
WTI Crude Oil is peeking out above its multi-month bearish channel, but traders may be hesitant to project continued strength after Friday’s big reversal.
USD/CAD is pausing just below resistance at 1.3540, but near-term momentum remains with the bulls.

Crude Oil Fundamental Analysis

The crude oil market continues to grapple with heightened geopolitical tensions in the strategic Red Sea corridor, where escalating conflicts have disrupted global shipping routes, but you wouldn’t know it from it looking at the price action so far this year.

Against this backdrop, the International Energy Agency (IEA) has revised its oil demand forecast upwards, projecting an increase of 1.24M barrels per day (bpd) in 2024, up 180K bpd from the previous forecast. This revision comes amidst a backdrop of ongoing Middle Eastern tensions, notably the U.S. strikes against Houthi targets in Yemen in retaliation for attacks on shipping, and the Iran-aligned Houthis' strikes in solidarity with Palestinians.

Moreover, the IEA's outlook suggests a "comfortable and balanced" oil market for the year, despite the brewing Middle East tensions and the challenges posed by extreme cold weather in the U.S., which has led to operational disruptions in North Dakota's oil output. This forecast aligns with the Organization of the Petroleum Producing Countries' (OPEC) stable demand growth expectations, though the cartel forecasts a dramatically stronger growth in demand of 2.25M bpd this year

Crude Oil Technical Analysis – WTI Daily Chart

Source: TradingView, StoneX

West Texas Intermediate (WTI) Crude Oil prices are looking cautiously bullish amidst today’s rally, but traders may be “once bitten, twice shy” when it comes to bullish breakouts after Friday’s failed rally out of its symmetrical triangle pattern and bearish channel. That day, oil prices rallied from $73 to above $75…before ultimately reversing and finishing lower on the day.

After such a violent reversal to end last week, this week’s resilience is particularly impressive. Moving forward, bulls will want to see if oil can close above the bearish channel first, then likely watch for a move above the 50-day EMA and last Friday’s high in the lower-$75s before feeling comfortable that a long-term reversal may finally be at hand. Meanwhile, a drop back below $70 could signal a continuation of the multi-month downtrend, with room down toward the June lows at $67 in play after that.

Canadian Dollar Technical Analysis – USD/CAD Daily Chart

Source: TradingView, StoneX

The Canadian Dollar has historically had a relatively strong correlation with oil prices, but when analyzing USD/CAD, that correlation has been far less consistent in recent years. From a fundamental economic perspective, the weakening correlation likely stems from the emergence of the US as an oil-drilling powerhouse, meaning both sides of the currency pair have large exposures to fluctuations in the price of oil.

In any event, today’s rally in crude oil may be contributing to the pause in USD/CAD’s rally, as is the 50% Fibonacci retracement of the November-December drop at 1.3540. That said, with only three relatively small down days in the pair so far this year, the short-term momentum remains on the side of the bulls, and a break above 1.3540 resistance could target the next Fibonacci retracements at 1.3625 (61.8%) and 1.3745 (78.6%) next.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.