Backtracking to our “Oil Super Cycle In Motion” article published on the 10th of March, we have seen major movements in the Dollar as well as some price action to cover on Oil.
Looking to the left, we have USD/CAD where price was consolidated within a daily range as we awaited further downside and to the right we have Oil after its hot run from the beginning of March.
The prior article price action has been marked up with a vertical line. As we can see USD/CAD broke the consolidation and had a continuation to the downside. However, when we look at Oil, this didn’t translate to extended highs. On the 18th of March, we saw Oil break down with closures back below the $60 handle. This in part, triggered a lower low formation on USD/CAD and began the retracement back towards consolidation.
From here we ranged for roughly a month before seeing Oil break higher and USD/CAD broke lower. Oil hasn’t seen as strong of a move in comparison to the currency pair, however this is due to DXY price action.
As expected we had an extended push higher after seeing our first push into resistance on the DXY. We see a retracement into the 78.6% fibonacci level which coincides with USD/CAD creating the lower low and retracing back towards our boxed off consolidation.
Once this resistance held and formed a clear lower high, we have seen further downside on DXY back into an extremely important level of support which will prove pivotal in the coming weeks/months.
Should we clear this monthly support, the path forward will be rocky for the US Dollar.
Analysing the weekly timeframe on USD/CAD, we can see a decisive bearish close followed by multiple wick rejections into the 50% fibonacci level. As we can see, price has now reached our 2nd fibonacci extension of -61.8% where we look to take profits. This coincides with DXY beginning to find support.
Applying a fib from the wick rejections off the 50% down to the lows, we have 2 fibonacci levels where we will monitor for retracements as well as a minor level of resistance inline with the descending trendline dating back to March 2020. As we can see, price has not made a higher high yet so we will need confirmation in a structural break before acting on this potential move higher.
Fundamentally, we have seen US oil inventories come in today at -1.7M, beating forecasts of -1.0M and a previous figure of +1.3M. Iranian oil exports have also been forecasted to only restart in October causing more supply shock and upside for Oil prices.
On the other hand, we also see fears of inflation drift slightly as the FED reaffirm their transitory outlook. This may put pressure on Oil prices, so we will be keeping a close eye on the inflation narrative. Inflation expectations are essentially a mirror of the Oil prices.
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