Canadian Dollar could make a comeback even though oil is falling

• USD/CAD extended its rise as oil prices dropped.
• The C$ sell-off is sharp, with CAD entering oversold conditions, 
• The overbought conditions on USD/CAD can send it to uptrend support.

The Canadian Dollar continues suffering from the drop in oil prices. The price of petrol enjoyed some respite on Monday on reports that Saudi Arabia is willing to cut its oil output. However, the relief rally did not last for too long. US President Donald Trump called OPEC to allow oil to flow and supply set prices. Crude prices turned south once again.

At the time of writing, WTI Crude Oil is below $59, the lowest since mid-February, a 9-month low. The current situation sent USD/CAD to a four-month high. The pair is touched 1.3250, last seen on July 20th.

However, examining the same daily chart, there are signs that the rally of USD/CAD may be close to a conclusion, or at least a pause for some oxygen.

The Relative Strength Index (RSI) is nearing the 70 level. Another small push higher and it the RSI will cross into overbought territory.

Moreover, the most recent drop in oil prices is not immediately followed by a fresh high for Dollar/CAD. Perhaps the pair is tired of being pumped up by oil.

As the chart shows, the pair is trading alongside an uptrend support line that accompanied it from early October. The line currently meets the price around 1.3150, but it is getting closer to 1.3175 that was a peak in October and works as support.

Before that line, 1.3220 capped the pair in early September and remains close. 1.3050, a swing low in November, is the next line to watch.

Looking up, the next line to watch is 1.3295 that capped the pair in July. Further up, we are back to the highs seen in June: 1.3350 and 1.3380.

It is important to remember that the Canadian economy is not only about the black gold it extracts from the tar sands but that it also depends on demand from the US, internal consumption, house prices, the global economy, and more. The new trade deal, the USMCA, is quite promising for Canada and provided relief after many months of heightened uncertainty.