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Loonie Hemmed In Ahead of Key Data

Published November 16, 2016
  • USDCAD continues to consolidate this morning as it trades in a tight range on either side of 1.3500 
  • Oil prices have given up some of Tuesday's 5% rally, with the pull back coming amid a stronger USD (11 month high for the USD index) and expectations of another build in US crude inventories 
  • Yesterday's oil rally was infused by chatter that Russia and OPEC officials were going to meet ahead of an official OPEC gathering Nov. 30th to discuss production coordination
  • The chances of a production cut are likely 50-50 at this point and the long term effect on oil prices will likely be negligible given a resurgent US petroleum industry that is now able to rival OPEC 
  • A cut from OPEC can be interpreted as a move to inoculate against further deregulation of the petroleum industry in the US under the Trump administration, which would encourage domestic exploration and production
  • The EIA reports inventory at 1030am ET this morning with the market looking for a build of 1.46M barrels
  • The US also reports PPI indices, industrial output, and capacity utilization
  • Meanwhile, Canada reports manufacturing sales for September
  • Fed policy maker, James Bullard, said in prepared remarks this morning that he is not worried about USD strength just yet and that the current rise in inflation expectations is a good thing from a Fed point of view
  • He also noted that US growth will be positively impacted by infrastructure spending plans over the next 2-3 years
  • Fed Chair, Janet Yellen, testifies before Congress on Thursday and this may provide more clues on how the Fed views Trump's plans
  • The bias in USDCAD remains higher with dips seen as buying opportunities
  • There is a massive US $2.3B USDCAD option expiry on Friday with a strike of 1.3500 and market chatter is citing this as a reason for keeping spot hemmed in close to 1.35 
  • Near term resistance to the topside comes in at 1.36 and 1.3860, the respective 50% and 61.8% retracements of the 1.4689 – 1.2457 leg lower 
  • There is good USD demand seen at the 21 DMA of 1.3381, which is right at old trend-line resistance turned support; a close below this level argues for a more extended period of consolidation with the potential to pull back closer to the 100 DMA in the 1.3100's

Charts: (1) USDCAD bias to the topside. (2) Secular USD bull markets typically last 9 years. (3) Economic Calendar.