Oil will show the “Canadian” way

By | April 6, 2020
InstaForex
Oil will show the "Canadian" way

Long-term review

What can’t you do to pull the American stock market out of the abyss! And you will implement the $2 trillion fiscal stimulus, and the Fed will force the rate to drop almost to zero and reanimate QE, and you will reconcile the enemies. One of the important drivers of the fall in US stock indices is the peak of Brent and WTI to the area of 18-year lows, which negatively affects the stock prices of oil companies in the United States, increases the risks of their defaults and bankruptcies. In order to prevent this, Donald Trump has to put pressure on Russia and Saudi Arabia. Events in the black gold market attract the attention of investors, and along with it, interest in the currencies of oil-exporting countries is growing.

The OPEC+ meeting and the report on the maple leaf country’s labor market for March make you look at the Canadian dollar. At the end of the second decade of spring, its position seemed hopeless, but cheap liquidity from the Fed and Donald Trump’s intervention in the oil war between Moscow and Riyadh changed the picture somewhat. The US President insists that the cartel and other producing countries reduce production by 10-15 million b/d, otherwise he intends to apply duties on imports from Russia and Saudi Arabia. Investors believe that a compromise will be found at the OPEC+ meeting, and push Brent quotes to $33 per barrel. Given the close correlation between black gold and USD/CAD, it was possible to assume that confidence would return to the “loonie”. However, the exchange rate formation on forex depended on a single factor!

Dynamics of USD/CAD and oil

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The Fed lowered the federal funds rate to 0.25% and announced its intention to buy as many Treasury and mortgage bonds as it wants, but instead of helping the US equity market, the Central Bank strengthened the US dollar. The latter is used as the main safe-haven asset, and cheap liquidity from the Federal Reserve in conditions of deteriorating macro statistics allows investors to increase their share in portfolios. The dollar strengthened in response to disappointing statistics on the US labor market for March. Most likely, it will continue to improve its position even if other countries will release gloomy data.

In this regard, the sad forecasts for Canadian employment are the very factor that restrains the bears’ attacks on USD/CAD even against the backdrop of growing oil. The consensus forecast of Bloomberg experts suggests a reduction in employment by 500,000 and the Royal Bank of Canada and Citigroup expect a decline of 1-1. 1 million at all. If the most pessimistic estimates become reality, and OPEC+ fails to agree, oil and the “loonie” will return to a downward trend. In the opposite case, the “Canadian” will continue to correct.

The fundamental picture is confirmed by the technical one. The USD/CAD pair is frozen in the consolidation range of 1.40–1.43 within the “surge and shelf” pattern on the basis of 1-2-3 and is waiting for news. A breakout of support at 1.40-1.401 makes sense to use it to form short positions. A successful assault on the resistance at 1.43 – to open long positions.

USD/CAD, the daily chart

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*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Marek Petkovich,
Analytical expert
InstaForex Group © 2007-2020

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