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Oil, Data Give Loonie a Boost to 7 Week High

Published August 16, 2016
  • Oil prices are higher once again this morning – WTI reached $46.16 – however, the pace of gains is starting to slow and some traders may be paring back positions ahead of Wednesday's EIA inventory data
  • WTI prices have risen 12% in three sessions and 18% since Aug. 3, driven at first by a round of short covering that turned into further gains on the back of some timely comments on production coordination from the Saudi's
  • The rapid rise caught the attention of CAD traders and we have seen a corresponding move lower in USDCAD to 1.2798 this morning – a 7-week low – and the next few weeks look increasingly capable of delivering more volatility
  • According to trade data from the CFTC, total WTI long positions are the highest in over a year while total short positions are at a record high, cementing the vast differences of opinion in the market at present and setting the stage for what could be a very volatile autumn
  • Volatility across assets is at extremely low levels and stock markets are essentially at record highs; if the good times suddenly look unsustainable then we could get a large shock to the system in the near term
  • This morning's data from the US was mixed once again as CPI on a monthly basis came in flat at 0.0% for July while the core y/y reading rose 0.2%, slightly less than the 0.3% expected; this caught the bond market’s eye and US 10yr rates moved lower given the lower inflation profile
  • However, housing starts for July rose a much better than expected 1.211M units compared with 1.18M expected
  • Canadian data was also encouraging as Manufacturing Sales in June rose 0.8% compared with forecasts for a 0.7% rise
  • USDCAD jumped back into the mid 1.2800's following the data however risks in the short term are skewed to further downside with 1.2740 and 1.2670 as the next areas to watch

Chart: USDCAD back to range trading as uptrend broken – 1.2740 could be further support after today's 7-week low right at 1.2800.