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USDCAD Awaits Key US Data Ahead of Thanksgiving

Published November 23, 2016
  • USDCAD continues to oscillate in the mid 1.3400's ahead of a slew of key US data released this morning
  • Durable goods, jobless claims, new home sales, and consumer sentiment are all on tap (see Chart 4)
  • In addition, the US Energy Information Administration (EIA) releases oil inventory data for last week
  • The market is looking for yet another build of 799k barrel – a rather modest figure compared with massive builds of 14M, 2M, and 5M barrels in the each of the preceding weeks
  • Oil prices have pulled back slightly after a significant 17% rally over the past seven sessions to a high of $49.20 for WTI
  • Optimism over the prospect of OPEC coming to agreement on a production deal has been the main driver of the move
  • However, it is important to note that the spot market bore the brunt of the price increase and the differential to longer dated delivery contracts did not contract, and instead has continued to widen
  • This indicates that the futures market does not believe that the prospect of an OPEC cut will lead to a lasting impact on the current supply/demand imbalance, otherwise we would be seeing a narrowing of the contango in oil prices 
  • As a result, it is safe to assume that the majority of the bullish price action in crude was the result of traders and speculators closing out short bets ahead of OPEC's ministerial meeting on Nov. 30 rather than a fundamental shift in supply, and thus price, expectations
  • USDCAD found good support near 1.3400 this week, which is the 21 day moving average 
  • The bias remains higher on the weekly chart but it looks as though we are consolidating at the moment
  • There are US$ 900M in option contracts with a strike of 1.3500 expiring this morning at the 10am NY cut; we suspect that spot will naturally gravitate upwards this morning especially given the potential for thin liquidity ahead of US thanksgiving 

Charts: (1) USDCAD bias to the topside. (2) USD Index breaks out. (3) OPEC production vs. proposed cut. (4) Economic Calendar.