The Canadian dollar weakened yesterday amid falling oil prices. There is no macroeconomic data on the Canadian economy now. Thus, the current forecast is based on oil prices.
Weakness of raw materials assets can be linked to the COVID outbreak in China. Since the country is the largest importer of oil in the world, the COVID issues have a negative impact on the recovery of fuel demand. However, these problems are temporary, and according to Chinese forecasts the peak of diseases will be in January 2023, that is, the consequences of the outbreak will not last long.
The rest of the oil news are quite bullish:
The Russian Federation's response to the G7 price cap on Russian oil matches the promises previously voiced by state representatives, and had no significant impact on global fuel supplies. However, Russia leaves open for a more decisive move to the EU-imposed price threshold for raw materials.
In Sweden, oil prices are predicted to rise after Russia's response to sanctions. As a result, Russia is to ban the supply of its crude to a range of European countries which agreed to the price cap on Russian oil. Christian Kopfer, equity research analyst at Handelsbanken, said on Tuesday that the oil price might increase significantly for the Europeans due to this fact.
According to the technical analysis, the currency pair USD/CAD went below the support level, which previously formed a rising trend in the currency. Yesterday, against the background of falling oil prices, there was a test of this support from bottom to top. As a result, the currency pair turns downward again, the target of this movement may be the recent lows, which were reached. This is the level of 1.349. Now a classical retest of the previously broken level can be observed. It also confirms a possible continuation of the downward movement.
Stop-loss can be put just above yesterday's local high, which is near the price of 1.363.
Oil also hints at a possible reversal after the correction. The price of "black gold" reached the lower boundary of the uptrend, which we drew in the last oil forecast. From this level, there might be an attempt of a new growth wave, which will support the Canadian dollar.
USD/CAD is likely to decrease:
Take profit – 1,349
Stop-loss – 1,363