I am currently waiting to see if the energy markets will push on higher as the fundamentals deteriorate around the Russian oil markets. The USDCAD has been one of the easiest trades to express a bullish energy market point of view. But now that Brent is at a couple of key levels that a lot of traders will be looking at, we have to wait and see what they decide.
Forex analysis USDCAD
The Brent crude contract is at a significant level on the charts. Fundamentally things are looking very bullish for the price of oil. Russian oil is finding it very difficult to get to market as ship owners refuse to dock at Russian ports, insurance companies are making it nigh-on impossible to insure anything in a war zone and if the product makes it onto some sort of tanker, European dockworkers among others refuse to unload. If the 4.5M BPD of Russian oil is effectively removed from the market, the price of Brent will be above $150 per barrel. Some analysts think it could go to $200. The sentiment is also bullish in the energy markets as demand shows no sign of diminishing. Asian countries like Singapore which were very authoritarian when it came to COVID-19 are opening their economy and so we are seeing the global economies around the world continue to relax measures. The US EIA report shows a draw on their stocks from last week. So technically, we should be looking for levels to buy Brent. What we see on the chart above is that the price is at the 61.8% fib level, so we know traders will be looking at that. We are also at a previous daily low which is clearly acting as some sort of supply level.
The Brent sentiment indicator on the ActivTrader platform is showing 89% of traders in the Brent trade are long, so this is very crowded and I expect these traders to get stopped out at some point. It may be as of today that there is a squeeze on their position.
The USDCAD is currently under the 3 major moving averages that I use and all 3 are pointing lower, though we haven’t seen the 20 and 50 cross below the 200 yet. Price action shows lower lows and lower highs, indicating that March is a downtrend for the forex pair. Support is a lot lower at 1.25849 but yesterday’s daily candle shows the bulls taking control of what was an indecisive day. A break higher than yesterday’s high could see us travel back to the 20 & 50 EMA’s as we look for some clean levels to trade from.
I don’t favour trading the long side of the USDCAD as once again the retail traders on ActivTrader are super bullish this pair. So, whilst we are above yesterday’s low I will wait to see if we get a rejection from any of the daily highs, assuming we trapped some more longs and then wait for a push ultimately down to the double bottom at 1.2450 and possibly lower.
If the price of Brent does go lower, this USDCAD will rise. But my base case scenario would be for the energy markets to go higher. We just may need to wait for a pullback before the fundamentals, sentient and technical align again.