Published October 27, 2016
- USDCAD is trading in the upper 1.33's once again this morning with overnight price action testing Monday's 7-month, just a few ticks shy of 1.3400
- Oil prices have stabilized this morning with WTI trading at $49.32 after briefly dipping into the $48's yesterday
- The market didn't seem all that interested in Wednesday's relatively positive EIA inventory report which showed a larger draw on crude inventories than was expected as well as an uptick in refinery runs
- Chatter surrounding the headwinds to a potential OPEC production deal continue to be the dominant theme for near term price action
- To distill it as succinctly as possible, any deal will come down to whether or not the Saudis wish to resume their role as swing producer – they must contemplate cuts to their own output even as other members of OPEC pump as much as they like
- This leads to us to believe that any deal will be token at best – in order to save face – given all the promises that have been made
- The Canadian dollar certainly didn't benefit that much from the 17% percent rise in oil prices from late September to Oct. 19th and as prices have now fallen 5% from their peak, we would expect risks to both oil and the Loonie to remain skewed to the downside
- US economic data was rather middling this morning with Durable Goods orders for September falling short of expectations; however, figures for August were revised higher
- US jobless claims were essentially on target at 258K compared with 255k expected (Chart 3)
- Chart 1, the longer term USDCAD weekly chart below, shows a potential bullish signal being formed
- The stochastic indicator has risen above 80 this week
- The last four times this has happened, USDCAD subsequently rallied by an average of 9% before consolidating
- Nothing is certain, of course, and this particular chart implication should be taken within a larger context, but this is another indication that the balance of probabilities seem to be tilted in favour of a stronger USD in the medium term
- Friday we get US GDP and Consumer Sentiment figures which have the potential to really whipsaw the market; prepare as best you can!
Charts: (1) USDCAD forms potential bullish signal on weekly chart. (2) US-CA 2-year yield spread supports spot. (3) Economic Calendar.