WTI crude breaks 200MA, commodity currencies boosted

Sean MacLean
Research Strategist
1 Oct 2020
Western Texas crude (XTIUSD) opened above its 200 moving average on Thursday, which in normal times might indicate a bullish bias. But is $40 a barrel realistic right now or will the bears take control again?

Daily chart: XTIUSD. Black line: 200 moving average. Red dash: 40.0 handle. Chart source data: Metaquotes MT5.

Price has hovered the 200 day moving average since early August, but failed to hold the higher range early September. Since mid-month, price has hugged the indicator fairly tightly, opening higher this morning after reclaiming recent losses. The move comes on news of both lower US stockpiles and a slightly weaker US dollar, the effects of which for now have outweighed what remains a grim outlook for oil demand.

With global economies still in some form of lockdown, millions working from home and air travel severely limited, the fundamental outlook feels tilted to the downside. So how far can a break of the 200MA take price this time and can the bulls trade through 43.50?

The technicals don’t compel me either. Not only has price remained below the 45 handle since March, but the bulls haven’t even been able to test the 61.8 Fib retracement of the 2020 sell-off.

Perhaps the strongest hope for XTIUSD bulls in the near-term is the prospect of an even weaker US dollar - and I’ll be watching 43.50 resistance for signs of a stronger bull trend here.

Nonetheless, other corners of the market respond in kind to yesterday’s positive move in oil and broader commodities. Iron ore moved higher as well to $120 USD per tonne. Commodity currencies benefited and we saw AUD, CAD, NZD, and NOK all higher, while the EUR and JPY were lower on the day.

A notable beneficiary was the Canadian dollar, which is sensitive to price movements in US crude (XTIUSD). USDCAD fell -0.6% yesterday on CAD strength as XTI drifted higher. CAD extended its gains in the asian session Thursday.

Daily chart: USDCAD. Chart source data: Metaquotes MT5.

Although crude has helped, the easing US dollar remains a significant part of the equation here. The pair ran into comfortable daily resistance at 1.3420, before moving lower in yesterday’s session and pushing through multi-month support 1.332 in today’s session.

I’m watching the 50-day EMA (purple) and 20-EMA (blue) - closes below here should provide this downtrend more conviction.

We look at USDNOK and see a very similar trend over the same period. The Norwegian krone is also a petro-currency and is sensitive to price moves in the european oil benchmark Brent crude (XBRUSD).

Daily chart: USDNOK. Chart source data: Metaquotes MT5.

We see a stronger downtrend in USDNOK than USDCAD over the past week, with USDNOK having rejected the 200MA and currently forging its fourth consecutive day lower. I’m wanting to see the 50-EMA (purple) and 20-EMA (blue) cross-over to give this pair a bearish bias again and a more compelling case for resumed NOK strength.

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