close icon

USDCAD and Crude Oil Abandon Negative Correlation

Between 2000 and 2016, USDCAD and crude oil had a negative correlation in 93% of the time. Canada is one of the world’s biggest oil producers and the largest oil supplier to the United States. So, when U.S. demand for oil rises, demand for Canadian dollars rises, as well, thus hurting the USDCAD exchange rate. In the opposite case, as oil demand decline, demand for Canada’s currency also falls. So in general, USDCAD and crude oil prices are supposed to move in opposite directions.

And most of the time they do, but not this week. During the last several days, the price of a barrel of WTI crude oil climbed from a low at $60.79 on Thursday to as high as $63.06 today. Meanwhile, USDCAD added over 200 pips after it rose from 1.2555 on Monday to 1.2759 on Thursday.

Now, if you are wondering why did USDCAD and crude oil rise together, we will have to disappoint you, since we are just as clueless about the fundamental reasons for this sudden positive correlation between the two. Fortunately, if you are an Elliott Wave analyst, not knowing why something would happen does not mean you cannot be prepared for it. The rest of the article shows how the Elliott Wave principle put us ahead of the rally in both USDCAD and crude oil, which were otherwise supposed to move in opposite directions.

Let’s take USDCAD first. The chart below was sent to subscribers before the open on Monday, February 19th.
usdcad and crude oil correlation
As visible, the Wave principle suggested USDCAD should climb to a new high, because there was a five-wave impulse from 1.2248 to 1.2688, followed by a three-wave w-x-y decline to 1.2450. According to the theory, the trend resumes in the direction of the impulsive pattern. Hence, we assumed the pair should head north, towards 1.2700 for starters. Five trading days later, here is an updated chart.

usdcad and crude oil correlation

USDCAD started climbing almost right away and the invalidation level at 1.2248 was “in a galaxy far far away.” Four days later the bulls exceeded the previous high and went for 1.2759. Unfortunately for traders, who have been relying on the negative correlation between USDCAD and crude oil, the latter did something similar this time. The chart below was sent to subscribers as a mid-week update on Wednesday, February 14th.

usdcad and crude oil correlation

Over a week ago, crude oil was trading at $58.75, but given the bigger picture outlook as well as the corrective structure of the decline from $66.63, we thought that even if the black gold loses another dollar a barrel in wave “c”, a bullish reversal should follow. The next chart shows how the situation developed.

usdcad and crude oil correlation

The price did not even make a new swing low as mixed data triggered the anticipated recovery slightly ahead of schedule. Less than two weeks later, crude oil is already looking for a decisive breach of the $63 mark.

We are not saying the negative correlation between USDCAD and crude oil has disappeared. It has been very strong for many years and it would probably remain that way in the long-term. Nevertheless, it might even turn positive from time to time. In those rare occasions the Elliott Wave principle could make the difference.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Ahead of the 14% Crude Oil Dive with Elliott Wave

The crude oil market is capable of going from a state of oversupply to one of not enough supply in relatively short time. OPEC and Russia’s decisions and the fact that in a normal year the world consumes over 100 million barrels of oil daily cause the pendulum to swing from glut to deficit quite…

Read More »

Chevron Stock Doubled in a Year, Can Go Higher Still

A year ago it seemed like all hell was breaking loose on the oil industry. Even oil majors like Chevron couldn’t escape the carnage. First it was the pandemic, which forced governments to close businesses and restrict travel. Then, the Russia-Saudi Arabia oil price war worsened the situation as the two countries failed to negotiate…

Read More »

Crude Oil Reaches Bullish Target Amid New Lockdowns

COVID-19 returned with a new force in Europe after the warm summer months. Countries around the continent have entered new lockdowns in an attempt to curb the virus’ spread. The situation in the U.S. has never been worse with roughly 200 000 cases per day. But unlike during the first wave of measures, crude oil…

Read More »

Crude Oil – The Elliott Wave Reason for the Reversal

At the start of last week crude oil was trading at less than $36 a barrel. It was down from $43.84 in August and from $41.91 on October 20th. Fortunately, Elliott Wave analysis helped us prepare for this selloff in advance. So, when the weekly session began, the price of crude oil was down 14%…

Read More »

Crude Oil Bears Make the Most of Their Time to Shine

After the market broke during the pandemic panic and crude oil prices fell into negative territory, a quick and sharp surge followed. WTI climbed to $43.84 a barrel in late-August. But the crisis was far from over and the Elliott Wave principle helped us correctly predict the bearish reversal that came next. Now, crude oil…

Read More »

Crude Oil Gave Bulls a Clear Warning Before it Dropped

It’s been a bad couple of weeks for crude oil bulls. The price had been steadily climbing for months, up over 300% since late-April. In the last days of August, WTI crude oil reached almost $44 a barrel. By September 8th, however, the price was below $36.50. This 17% drop can be explained with the…

Read More »

Bullish Crude Oil Bet Pays Off Against All Odds

When it comes to the crude oil market, last month was one for the history books. The coronavirus pandemic forced the global economy to grind to a halt. This led to a sharp decline in oil consumption, while production was too slow to adapt. As a result, there was plenty of oil nobody wanted as…

Read More »

More analyses