The Bank of Canada surprised investors today when it reigned back in the tone from its monthly meeting. Many had been expecting a more upbeat hawkish tone building into 2018, what they got instead was quite the opposite and weakened the Canadian dollar in turn. Despite the positive economic data, and NAFTA developments, the Bank of Canada was instead more neutral on the subject, and was focused on the fact that interest rates may need to remain below the neutral range for the interim while the economy continues to develop. The hawks had been building positions for some time, and as a result were quick to sell, leading to the CAD being the largest mover of the day as traders sold out positions at a rapid pace.
So what now for the USDCAD? Well it would seem that the bulls have surged back into the market to punish the hawks who had accumulated positions. The movement upwards has struggled to gain momentum past the 200 day moving average and it looks like the bears are looking to assert control. Resistance on the bullish side remains solid at 1.2693, but remains a key target for bullish traders in the interim. Despite all of this NAFTA is on the cards and could give the potential openers that the bears need to move lower on this, and back into trying to break the bullish rise. If the bears take back control then a push down to 1.2548 is likely on the cards, but it may take some new economic data or events to lead to any breakthrough to the 1.2400 level, or a case of further USD weakness.
The other major contender today has been crude oil as it has leapt up sharply on the news that US crude oil inventories were down 1.07M barrels (0.65M exp). This was followed in turn by gasoline and distillate both showing sizeable draw downs as well. For oil bulls this was a queue to take charge and they certainly did as oil shot up sharply on the back of the news. Markets had been expecting a slight surplus for gasoline and crude, but were treated to news that there was more demand than expected - always a positive for bullish traders.
On the charts this has seen oil smash through resistance at 67.61, which had been for some time a strong level that markets could not bust through. This now leads onto markets targeting the next level at 69.49, something that is very close to that 70 dollar mark. Expectations are that anything over 70 dollars may be overbought and we could see some bearish pressure in the market if that is the case. However, oil markets have been known to defy analyst calls time and time again, and this looks unlikely to let up anytime soon if the data continues to show deficits rather than surpluses.
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