Oil prices have started to push higher as Hurricane Laura begins to move from the Gulf of Mexico towards the heart of the U.S. oil industry. Since Tuesday, 1.56 million barrels per day of crude output has been shutdown as well as 15% of the U.S. processing capacity has also been shut down. Let us look below at a pair that correlates well with the U.S. oil market and what the under supply of oil this week has done to the pair this week.
Above we have the 4-hour chart, looking at the highlighted box we can see this pair found support at the low formed during the U.S. session on the 19 August as well as Monday’s London low. We can also see that a lower high was formed on the major key level of 1.32000 shown by the ellipse and then went on to create a lower low. Looking at the overall structure of this pair we can see that the lower supply of oil this week pushed the oil market up slightly which favors USDCAD downside.
Dropping down to the 1-hour time frame, we can see more clearly that 1.31350 has been holding as support. Drawing a trend line from the high on the 25 August with the second touch of the trend line on the 26 August and also drawing a fib tool, the 61.8% level as well as the third touch of the trend line could be a potential zone where USDCAD could continue the momentum to the downside. If price breaks through the trend line we’d look at the 78.6 for reversals on this pair. If we do break through the 78.6 as well, I would plot a fib from the high on the 25 August to the highlighted region for the higher time frame fib where you will see that the 61.8% fib level lines up with the key level 1.32000.
At the moment, it will be crucial to see what kind of damage Hurricane Laura causes as it progresses through the U.S. It has already hit Louisiana causing flash floods and it is expected to hit Texas as well but refiners are expecting to be back online by the weekend. However, if the Laura can maintain speeds as it makes it’s way towards Texas, we could see the reopening of rigs and refineries get pushed back into next week which would further slow the production of oil and will push USDCAD down further.
Remember to always stick to your trading plan and use the correct risk management when entering set-ups. Subscribe to receive emails sent directly to your email.