A rally in oil led to a sharp sell-off in USD/CAD on Monday.
Improved market sentiment, risk appetite and potential disruptions due to Hurricane Ida, led to a rally in crude oil that spilled over into USD/CAD. Canada is home to the world’s second-largest proven petroleum reserves and the Canadian dollar is very sensitive to moves in crude oil prices.
USD/CAD was on a stead trend lower throughout the session, falling from 1.0775 to 1.0550 in an especially orderly fashion. The trade was a trend-follower’s dream.
In the past several hours, we have entered into a period of consolidation. Oil has fallen from $80 to slightly below $79 and we have seen a rebound in the pair to 1.0576. After such a long and steady decline, a period of consolidation and range-trading is normal. We the first target on a rebound will be the 1.0594 low from late last week. In the past, the 1.06 range has proven to be a key swing point in the currency, so a re-test of that level before a further decline would be the most likely scenario. A rebound to this level would also coincided with a bounce to the mid-point of the Bollinger Bands (shown).