Oil has now risen to $71 USD a barrel for West Texas on the back of yesterday’s announcement by Donald Trump and this morning’s lower inventory numbers. Initially the market yesterday was unchanged on oil, but as analysts have now had time to digest the repercussions prices started to move higher. The inventory numbers also were unexpected taking traders by surprise.
The Canadian dollar has rallied half a cent on this news, other Petro currencies are moving higher as well, expect further volatility as France, Germany and Britain will try to apply pressure to the USA to renegotiate the Iran Nuclear deal.
USDCAD 1.2848, 1.2836, 1.2825 1.2865, 1.2871, 1.2880
USD-CAD has traded softer today after yesterday posting a seven-week high at 1.2997. The pair has now ebbed to the lower 1.2900s. The new high extended a rebound from mid-April two-month low at 1.2527. The surge in oil prices, which were showing a 3% gain at the intraday highs today, should, if sustained, return some demand for the Canadian dollar given the benefit to Canada’s terms of trade. USD-CAD has resistance at 1.3000. Support comes in at 1.2905.
EUR-USD rebounded form a fresh trend low, settling to a consolidation around 1.1860. The pair earlier posted a new 2018 for the fourth consecutive session, this time at 1.1822. Dollar supply from a 3% spike in oil prices has been mooted in market narratives as having driven EUR-USD up from lows, with Cable and other dollar pairings having seen a similar price action. The December low at 1.1717 provides a target for this still viewing EUR-USD, which has been in a well-defined downtrend since mid April on the back of a favourable widening in the dollar’s yield advantage, as a trend following opportunity. Trend resistance comes in at 1.1890-92. Fundamentals remain in alignment with trend followers, with French industrial production data for March coming in much weaker than expected. There is also fresh uncertainty in Italy’s political situation.
Cable recouped to the mid 1.35s, extending a rebound from the four-month low that was seen yesterday at 1.3484. Good demand kicked in at 1.3499-1.3500 following an early-London AM dip. The rise largely reflect a phase of dollar selling. Data today showed UK retail sales came in much weaker than expected at -4.2% y/y in the headline April same-store measure from the BRC. The median forecast had been for a much more modest decline of 0.8% y/y. While the outsized fall is partly blamed on the timing of Easter this year, which concentrated spending in March rather than in April as had been the case last year, there is also underlying trend weakness afoot. The data is a further nail in the coffin of expectations for the BoE to hike at this week’s May MPC meeting, which starts today and concludes tomorrow. We continue to advise trend following for Cable. The year’s low at 1.3458 provides the next target, while trend resistance coming in at 1.3605-06.