The Canadian dollar paired with the American currency is rapidly becoming cheaper. On the eve of the Catholic Christmas, the USD/CAD pair still entered the 36th figure - for the first time since April last year. The price has broken the upper line of the Bollinger Bands indicator on all timeframes without exception, confirming the strength of the upward movement. Now the task of the bulls is to gain a foothold in the area of the 36th figure and rise to at least 1.3650. In turn, the bears have to restrain the onslaught of buyers against the background of the dynamics of the oil market. In general, it is the oil market that will determine the future prospects of the Loonie, given the high correlation of USD/CAD with oil prices.
Today, a barrel of Brent oil has set another anti-record as the cost of raw materials dropped to $ 50.45 - the last time the price at such bottoms was in June 2017. The pre-Christmas trading session consolidated all the negatives of the previous days. The oil market fell, despite certain positive signals following the stock market. Over the weekend, some OPEC + participants expressed their intention to extend the Vienna agreement on limiting oil production until the end of next year, and if necessary, to revise its conditions by increasing the volume down to 1.5 million barrels per day. However, it should be noted that the oil traders were skeptical of these words since even the agreement reached (which provides for a reduction of 1.2 million b / c) was achieved with big obstacles. Therefore, the likelihood of such ambitious plans at the moment is minimal.
According to a number of experts, Monday's price fluctuations were speculative, as in the pre-holiday periods there is often anomalous volatility in the "thin" market. This is partly true, but there are also objective factors that put pressure on oil quotes. For example, in the USA the number of oil rigs has increased again - by 10 pieces. At the same time, oil production in the United States remains at the level of 11.6 million barrels per day, and the level of reserves of "black gold" almost did not change over the past week (441.5 million barrels), although experts expected a significant decline in this indicator. In other words, the market is still concerned that demand will lag significantly behind supply - at least, now there are all the prerequisites for such an imbalance.
However, not only the above factors are pushing oil quotes down. Traders are seriously concerned about the latest developments in the United States. This is the pre-Christmas stock market crash, and the "shutdown", as well as, Trump's aggressive criticism of the Fed. Against the background of a possible slowdown in the growth of the global economy, these factors put downward pressure on the oil market. General nervousness affects the mood of oil traders who are deprived of any support from fundamental factors. In particular, market participants on the eve of Christmas were actively emerging from risky assets due to the high probability of a crisis developing in the US stock market. On Monday, the Dow Jones index fell by 2.91% (to 21,792.2 points), the S&P 500 index fell by 2.71% (to 2.351.1 points) and the NASDAQ decreased by 2.21% (to 6,192.92 points).
It is worth noting that such a dynamic is not due to any one reason: the stock market, similar to the oil market, was under the cumulative pressure of many circumstances. Among them are unclear prospects for trade relations between the US and China, and further increases in the Fed's interest rates despite the actual slowdown in tightening in 2019 and the risk of a slowdown in the global economy, which resulted to a slowdown in the US economy. The third-quarter US GDP growth rate last week was already revised downward to 3.4%, but many experts expect a more substantial decline in the first two quarters of 2019. Actually, the Fed has lowered its forecasts for GDP growth and inflation next year, so there is no point in feeding any illusions here.
The political crisis in the USA (in the form of a shutdown) only aggravates the general fundamental picture. According to the American press, negotiations between Democrats and Republicans on the allocation of funds for the construction of the border wall have stalled. This means that the partial suspension of government work will be extended until January of next year, when the Congress will meet in a new composition.
Thus, the oil market is unlikely to demonstrate a more or less large-scale correction in the coming days. Price fluctuations are quite likely but the probability of a sustainable recovery of the market is extremely small. This suggests that any corrective pullback of USD/CAD can still be used to open long positions. From the technical point of view, all trend indicators on all timeframes warn about the continuation of the upward movement. The closest target of the northern movement is 1.3650 and the support level is the price of 1.3540, which corresponds to the Tenkan-sen line on the four-hour chart.
The material has been provided by InstaForex Company - www.instaforex.com