Down We Go, Up We Go…. Down We Go…? What a ride in stocks. Is The Loonie Predicting A Bottom In Oil…? Canada has had a hard time lately, and no where else has this been more apparent than in the massive depreciation of the Loonie against the Greenback. Where’s The Bear Market Gone…? The bear is still knocking on the door and this move upwards has all the tell tale signs of a shake out. Boris Takes An Axe To Sterling; Brexit…Ultimately Johnson is against remaining within the E.U and will campaign separately for leaving. The Canadian Dollar and Oil; Where’s The Correlation Gone…
Down We Go, Up We Go…. Down We Go…?
Is The Loonie Predicting A Bottom In Oil…?
24.02.2016 Canada has had a hard time lately, and no where else has this been more apparent than in the massive depreciation of the Loonie against the Greenback. As we’ve discussed numerous times, the USDCAD currency pair has an almost perfectly -1 correlation with Oil. This is due to both the dependence of the Canadian economy on their exports to the United States and of course their huge production of oil off the back of the Canadian Tar Sands. The high in USDCAD was seen on the 20th January, when the world looked as though it was falling around us with the global tock markets tumbling. The current low this year in Crude WTI was seen on the 11th February however. Although the correlation has slowly been moving further back to “normal levels”, there is still a very high likelihood the two will move in tandem, ending a trading session with similar gains/losses.
Currently we’re seeing what could be a turnaround in the USDCAD. The over exaggerated rally up to 1.4680 occurred during extreme market volatility and now that we’ve seen a retracement, it looks as though a top could well have been formed. At this point there is potential for a Head and Shoulders top, extending all the way down to a potential target of 1.2820. If we do get a confirmed H&S reversal, then this could foretell a brief jump up in Oil. Currently Crude WTI is sitting around the $29 – $30 a barrel zone. Although we haven’t seen a reversal in Oil to the extent of USDCAD, we have got the appearance of a strong technical reversal signal on strong support. The pin bar reversal candle, appearing on the 11th February resulted in a Morning Star pattern and the current retracement. If the $27.50 level holds and we get a reverse H&S pattern with a break of $34 a barrel which coincides with a USDCAD break of support at 1.3660, then we could get a nice setup. As this is a long term pattern, it may take awhile to take affect, so keep an eye on the two correlated markets and if we do get that break, make sure to be careful of any initial pullbacks. We need to see a strong close above resistance/below support.
Where’s The Bear Market Gone…?
23.02.2016 It was just 10 days ago that everyone was all stressed and worried about a bear market. The sentiment has since gotten better and we’ve seen a nice, healthy retracement in the global stock markets. In saying that however, both gold and developed market bonds are still trading near their highs for the year, which to me shows that the institutions are still holding a bit of “risk off” sentiment. I’ve heard a lot of retail investors talk about the current reversal as an opportunity to get net long the markets. We’ve been in a bull market since 2009 and are massively over due for a big reversal. We’ve got to remember that markets don’t just move one way and that bear markets can last a couple of years.
I think for now it almost entirely depends on the ISM PMIs in the U.S and China’s rate of economic deceleration. If we continue to move further below growth (50+) in the U.S PMIs then earnings will more than likely fall below forecasts, resulting in a much bigger drop in stocks. China as well will be massively influential this year. The big drop off in the Chinese markets kicked off things in January and it looks like any further uncertainty or fear going forward will cause a domino effect on global markets, due to their economic influence. For now I think it would be best to remain very cautious regarding any net long positions. The bear is still knocking on the door and this move upwards has all the tell tale signs of a shake out.
Boris Takes An Axe To Sterling; Brexit
22.02.2016 Over the weekend we had the date decided on the UK referendum to leave the E.U. The date is set at 23rd June and the UK Prime Minister; David Cameron has clearly stated numerous times how against leaving the EU he, and his party is.
Over the course of last week he secured a deal with Brussels that improved the UK’s position within the E.U. Within the new agreement, immigration rights and benefits were restricted to European nationals migrating to the UK and British tax payer’s money was safe guarded against ever being able to be used to support the eurozone.
Boris Johnson, the Mayer of London, didn’t hold back however in stating his opinion on Sunday, stating the following: “I will be advocating Vote Leave because I want a better deal for the people of this country to save them money and to take back control.” Johnson is a highly influential and popular political figure. Although he is a Tory, and therefore theoretically behind David Cameron’s government, his comments on the referendum could’t be more against the current Tory campaign to remain within the E.U. Ultimately Johnson is against remaining within the E.U and will campaign separately for leaving.
The Canadian Dollar and Oil; Where’s The Correlation Gone…
19.02.2016 The USDCAD currency pair has finally had the retracement it needed. After hitting 1.47, we found sellers resulting in the appearance of a bearish engulfing candle on the weekly chart. Since then we have been slowly pulling back to now trade around the 38.2% retracement from the rally beginning in March last year. This level also coincides with strong resistance turned support.
The correlation with oil was at an all time high, almost at a perfectly inline negative correlation of -1. We’ve since moved away from this, and although are still seeing similar movements across both markets (Crude and USDCAD), the Canadian dollar was massively oversold; probably more so than Crude in regards to the fundamentals.
The recent movement up in the oil markets was caused by in large by the expectations of a deal to trim supply by both the Saudis and the Russians. Although they came to a deal, it was not to cut supply, but instead to maintain output at their current levels. It looked as if neither party wanted to submit to the other in deciding to trim their output and so both parties made a joint decision to stop further growth in output. This is quite an interesting feat however, as current output is at an all time high and with Iran about to enter the market again, due to their sanctions being lifted, supply will continue upwards. Oil over all is still fundamentally very bearish, and unless there is a major disturbance to supply, I don’t see the recent rally lasting for long…
