USD/CAD continued its recent bearish correction as oil inventories remain near historic highs. Oil prices neared the $38.00 handle after crude inventories climbed 2.3 million barrels to 534.8 million last week. The EIA energy report highlighted Cushing supplies, the delivery point for West Texas Intermediate fell 272,000 barrel to 66 million.
The US dollar remained heavy following US Fed’s Evans comment that an April rate hike would be surprising. The dovish, non-voter supported Chair Yellen’s dovish stance and reiterated the balance of risks tilt toward the downside. Wall Street’s expectation is for the Fed to hike once this year, while the Fed FOMC forecast targets two increases.
The USD/CAD daily chart displays the recent weakness over the past five trading sessions is finding support just ahead of the 1.2900 handle. While oil’s seven consecutive days of falling prices appears poised to possibly test the mid-30s. The Canadian dollar may have formed a double-bottom pattern and if a bullish rebound occurs, we could see a test of the 200-day SMA, which currently trades at the 1.3344 level.
If we continue to see weakness with the USD/CAD currency pair (loonie strength), price may find major support from the 1.2700 level. It is around that area that price may form a bullish ABCD pattern. Point D is targeted with the 161.8% Fibonacci expansion leg of the B to C leg.
The trade: Buy USD/CAD at 1.2950 with a stop loss at 1.2850 and take profit at 1.3250. The risk/reward ratio is 1:3