The USDCAD pauses as crude gains over 20 percent from the recent lows, while having the best three-day gain in nearly 30 years.
Upward momentum in crude prices will help the Canadian dollar rebound slightly, but the fundamentals still remain bearish. In all reality, $47 per barrel will not rid the bearish fundamentals within the energy space.
While keeping it all in perspective, the pop in crude prices is due to a series of headline factors as crude traded near levels not seen since the financial crisis.
First, the Energy Information Administration (EIA) reported that U.S. crude production declined in July. Falling a to a mere 9.3 million barrels, production is roughly 300,000 barrels from the peak. For the first half of 2015, an average of 9.4 million barrels were produced. That's not that optimistic.
There was also a headline suggesting that OPEC may have a meeting with producers to determine a "fair" price for crude.
Speculators try to front-run such events hoping to ride the momentum. These momentum pops tend to be self-sustaining as traders begin to cover their levered-shorts.
The market saw the same thing earlier in the year only to engage in another "transitory" breakdown.
The USDCAD is up big, and price action will likely test the consolidation channel, which will act as the first line of support. If price action closes underneath it, look for the pair to test support at 1.3090/1.31.
The speculative ride could last near-term, where the 200-4H EMA would be a great downside target. The 4H +/- DMI is showing a possible bearish convergence that would further suggest more downside.
Key resistance levels will act as upside target is crude begins to unwind, considering that USDCAD does not completely unravel. Minor trend support looks to be broken, and bulls will have to attempt to get back over that hump.
I was shorting it yesterday - looks like its turning bearish (at least on weekly basis)
CommoditiesTrader
⋅
Yes. I think CAD has great potential, but I'm still bearish on oil until fundamentals and/or inflation change. When they do, CAD should se a big pop. I'll look at it on the weekly too!
Killy_Mel
⋅
Thing is that Inflation in consuming/developed countries is now driven by oil (down) - best seen on US All items CPI (around 0% y/y) and its Energy subsection (-25% y/y)
CommoditiesTrader
⋅
Agreed to a point. We cannot go solely off of CPI. And core CPI ex food/energy is still rising, according to FRED. Commodity prices that are easy speculated via markets are sinking. But rents, healthcare, ground beef, chicken, eggs, etc are all rising. I see the same thing happening in 2008/9. Commodities take it over the head, recession hits, and the Fed has no other option to print more money.
thats why september rate hike is not in the hands (that PCE is also below 1% y/y basis)
///
to repeat 2008/9 scenario there need to be some kind of bubble pop in the States. could it be China driven?
CommoditiesTrader
⋅
No, I understand that. As it is reported, inflation is low. Ground beef increasing 250% in 2-3 years is a bit much. But look at the growth of rents? If one follows models, then like the Fed, they'll be late to the party. And I have been critical of the Fed for nearly two years, and prior to the QE3 taper have published numerous pieces that the Fed will not raise rates. It's funny, the Fed first started thinking about raising rates in 2009 - quite humorous. And the Fed can't say it's about inflation because inflation, as it's calculated, has reached 2% several times. They missed their mark when data was good last year, as did the BoE.
There are a multitude of bubbles, globally. I don't know if one particularly will cause havoc in the US, but this is the age of globalization. Everything is interconnected. There are several housing bubbles; clearly inflationary asset bubbles in developed markets - both stocks and bonds.