Black gold has lost its lustre as of late, and that is no surprise that oil has had a struggle. With OPEC against the world when it comes to oil prices, we have seen the inevitable and that is no clear winner at this stage and no one willing to blink. Many early on expected to see the US shale producers fold quickly with the drop in oil, but it looks more and more likely that they will try and weather this storm before giving up. With the rapid changes around the globe and the pumping of cheap oil you would expect demand to pick up, but this is neither the case nor the likely future for oil demand, as it continues to remain sluggish and as there is a push for renewables in most global industries. US surplus data has also continued to show surpluses, albeit decreasing at a slow rate. But there is no real sign of there being a restoration of equilibrium in the market, and as such, some analysts are pricing in oil as low as $30.00 a barrel.
Looking at movements on the charts l it would seem that the oil buying we saw was nothing more than a dead cat bounce in recent times, and the bears have certainly taken control of this market for the time being. Resistance levels are likely to be found at 35.58 and 33.47 and a drop below this level would surprise me, it would also put extreme pressure on the energy sector as a whole. Oil below $30.00 a barrel would create seismic shocks in the market and likely lead to the collapse of a number of oil companies that would bring about some buying pressure in the market. For now though the bears are taking a big swipe and oil markets are looking very skittish.
While oil has been suffering the USDCAD has been rocketing as the fall in oil coupled with today's talk of stimulus weakened the Canadian dollar further. The recent fiscal proposals by the new government have shown that it's unlikely to hit the targets that it initially set out, and that the money expected to be raised is likely to cause further deficit problems for the Canadian economy. This is likely to cause a fair bit of pain for the Canadian economy as the oil sector is suffering heavily, which in turn is causing pain and markets will now be less receptive to the idea of stimulus when the fiscal position of the economy is worsening.
The bulls are very much in control, and resistance at 1.3931 is likely to be the next big level that will cause a slowing of the USDCAD. The push for this level may take some time as the USDCAD can be quite volatile at present and as oil markets continue to suffer I would expect the correlation between the two to certainly have an impact on trading strategies. Either way the dollar bulls are here to stay and the Canadian economy is certainly looking a little rockier than usual.
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