Forex technical analysis: If USDCAD is an oil trade, it is at a key level

The two instruments are dancing nicely. What next?

I caution against focusing too much on intra market analysis to execute trades. The reason is that the relationships can break down and more importantly, risk can not be defined by trading the dollar off of a gold move for instance. Where do you get out, if the dollar and gold are not great "dance partners" on that day or week? It can be quite painful when feet continue to get stepped on.

Having said that, if the CAD dollar is to attach itself to the price of oil, we are at a key area for the USDCAD because we are at a key area for crude oil.

Looking at the daily chart of crude oil futures, there are a number of different highs at the 60.00-60.33 area going back to December. The ceiling is what traders seem to be leaning against to define and limit risk. The high prices last week and today peaked at the 59.75-90 area. If the level holds resistance, we should see a rotation down which could rotate back toward the 100 day MA (blue line in the chart above) currently at the 53.64 level. That in turn should help to send the CAD lower, the USDCAD higher.

Looking at the USDCAD chart, as oil declined, the price of the USDCAD rose. Since the oil bottom in mid-March, the USDCAD has moved lower. The 38.2% of the move up from the July low was tested last week at 1.1991- around the time that oil was reaching the high.

The two instruments being great dance partners. Not a lot of toes are being stepped on.

So for oil traders, they may be looking at the USDCAD. For USDCAD traders they may be looking at the oil prices. Who will be the lead? We really don't know but if oil breaks above the $60.33, the door opens for further gains toward $65.85 (38.2% of the move down from the July high). That should send the USDCAD back lower and through the 38.2% retracement at 1.1991. We might see a move toward the 200 day MA (green line) and the 50% retracement in the 1.1730 area.

If the price of oil holds the 60.33 area, the USDCAD, will likely make a push toward and above the 100 day MA (blue line in the USDCAD chart), at the 1.2287 level. Above that the 1.2312.50 will play a key role in the next move.

The dance music is on. The dance is progressing nicely. Will it transition from a waltz to a tango (i.e. will the instruments reverse the recent trend) or will the waltz be the dance of choice? Key transition time for each.