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Loonie Trades Lower on Oil Outlook and Plunge in German Sentiment

Published July 19, 2016
  • Overnight market action was rather cautious highlighted by a massive plunge in German investor morale following the UK's decision to bid farewell to the EU
  • The German ZEW Economic Sentiment Index for July fell to a reading of -6.8, the lowest reading for the survey since the sovereign debt crisis in 2012 and well below readings of 54.8 reached in May 2015
  • Equities across Europe and in London are lower on the day and US and Canadian equity futures are pointing to a lower open as well
  • US ten year bond yields are falling as the risk off tone encourages a round of safe haven buying
  • Oil prices continue to trade sideways to yesterdays close with front month fetching $45.40 a barrel, above key support at $44.60
  • Swelling onshore inventories are forcing traders to store oil and oil products (gasoline, diesel, heating oil) in tankers offshore while they await buyers
  • Diesel and gasoline inventories are at three month highs despite summer driving season, and this may begin to create downward price pressure for crude as refinery demand is likely to wane
  • A break below price support at $44.60 for WTI may foreshadow a deeper pull back into the low $40 area which would likely be negative for the Loonie
  • USDCAD continues to trend sideways within its recent consolidation pattern
  • The market is testing the mid 1.3000's this morning for a gain of 0.7% for the greenback since yesterday
  • However, a move above resistance at 1.3120 is needed to spark USD bulls – bias remains to the upside for the USD   

Chart: USDCAD sideways consolidation continues.

Chart: Can oil break below key support?