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:

Crude Oil and USDJPY Ruled by One Pattern

Everything was going so well for USDJPY and crude oil bulls until last week, when both the exchange rate and the WTI crude price made sharp bearish reversals. Oil fell from as high as $72.88 to $67.40 a barrel, while USDJPY plunged from 111.40 to 108.95. Normally, the media tried to explain the selloffs with…

Read More »

WTI Crude Oil Knocking on a Major High’s Door

Between January 25th and February 9th, WTI crude oil’s price plunged from $66.62 to $58.06 a barrel, losing 12.8% in just 12 trading days. What the bears did in just over two weeks, the bulls needed a month and a half to recover from. Finally, oil prices climbed to $66.52 earlier today, following last week’s…

Read More »

Crude Oil Finally Reaches the $60 Mark

As WTI crude oil approaches the $60 mark, we could conclude that it was not a smooth ride at all. The price has been wandering between $55 and $59 for nearly two months until it finally broke out of this range to reach levels not seen since late-June, 2015. A month ago the price surpassed…

Read More »

Ahead of WTI Crude Oil’s Two-Year High

The price of WTI crude oil surpassed the $58 a barrel mark this week. The last time it traded at that level was in June, 2015, when the oil crash was still in full swing. Almost two and a half years later, the bulls’ efforts are finally being rewarded. It has not been a smooth…

Read More »

Crude Oil Ignores Hurricane Nate and Slips

Here we go again. The last time hurricanes had something to do with crude oil, the price of the commodity, according to popular media, was rising because producers were bracing for Irma, whose record-breaking winds were going to severely disrupt production. That at least made sense at the time. Now, oil producers are preparing for…

Read More »

Crude Oil Finally Rewards Stubborn Bulls

If you were bullish on the price of crude oil, last week was nothing short of wonderful for you. The commodity opened the weekly trading session at $47.57 and after a small dip to the round number of $47, it climbed to as high as $50.47 a barrel, exceeding the previous major high of $50.40,…

Read More »

Crude Oil on the Path of the Hurricanes

As if Harvey was not enough, the United States now braces for Irma, which in turn is expected to be followed by Jose and Katia. Irma is considered to be the strongest hurricane ever to hit the shores of the U.S.. Its winds are blowing at speeds higher than 185 mp/h (300 km/h), enough to…

Read More »

More analyses