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Long-term review

The oil market continued its southern rally yesterday. The cost of a barrel of Brent crude fell yesterday to the base of the 62nd figure, updating its multi-month highs (the last time the price was at this level in February of this year). In turn, WTI oil has updated at least more than 13 months.Such dynamics weakened commodity currencies. In particular, the ruble paired with the dollar fell to 65.96, and the Norwegian krone, to 8.58 (having lost about a hundred points). However, the Canadian dollar suffered the most from a drop in the oil market. The currency pair USD / CAD jumped to 1.3317 yesterday, increasing more than 200 points in one trading day.Today, the loonies are being corrected, as is the market for black gold, thereby demonstrating a fairly clear correlation. Therefore, assessing the prospects for the Canadian dollar, we must first find out the reasons for the continuing volatility in the oil market. It is also worth noting that yesterday's fall on Wall Street also contributed to the decline in the Canadian, but this factor plays a secondary role. However, first things first.

Exchange Rates 22.11.2018 analysis

If we describe the situation in the oil market in one word, then this word will be "uncertainty". According to updated expert estimates, the market is experiencing an imbalance period, supply significantly exceeds demand (by almost two million barrels per day). Even four years ago, when the cost of a barrel fell to $ 30, this figure was almost two times less. This imbalance was formed for several reasons.Firstly, the parties to the agreement on limiting oil production in the second half of the year began gradually, but confidently increasing production, going beyond the boundaries of the agreements. Secondly, Iran has actually maintained the level of its production, despite the sanctions imposed by the United States. In fact, they turned out to be much softer than in the words of American politicians. In particular, the eight largest countries in the world can easily acquire "black gold" from Tehran. As a result, Iran retained the level of its production, and OPEC + increased its volume. As a result, the overall level of production in the world increased.In addition, we should not forget about Trump's long-standing intention to reduce the cost of oil. For a long time, he failed to convince Saudi Arabia to influence the oil market accordingly, but after the tragic incident in Istanbul, the Saudis increased production by 0.14 million barrels per day. Whether it is a coincidence or not is an open question, but the fact remains. Riyadh boosted oil production, as the American president demanded. Actually, in the United States, the level of production is breaking all records. For example, last week, this figure increased again and reached a record 11.7 million barrels per day. Stocks of "black gold" are also growing since mid-September, only this week, there was a decline in this indicator, according to data from the API. Official figures will be published today during the American session.

Exchange Rates 22.11.2018 analysis

Thus, if the current dynamics will continue, the situation will worsen even more. Experts predict a decline in Brent not only to $ 60 but lower to $ 55. Therefore, oil traders have high hopes for the OPEC + summit, which will be held in December in Vienna. If the meeting participants agree to limit oil production next year, the southern trend will change to the north, and the price of a barrel can quickly recover to at least 70 dollars. But the problem is that the participants of the future meeting demonstrate uncertainty in this matter. In particular, Russia is silent, just like Saudi Arabia. Other large players admit the option of limiting production but in a rather hypothetical way.According to analysts, the variant of the implementation of last year's scenario is rather small. Given the relationship between Washington and Riyadh, the Saudis are unlikely to take the initiative in this matter, while Saudi Arabia is called the informal leader of the Cartel. Moreover, according to experts, to stop the devaluation of "black gold", it is necessary to significantly limit production by 1.2 million b / s, and to turn the price up, more decisive actions are needed. The cartel needs to limit production to 2 million b / s. Half measures will not give any effect. Almost all experts agree on this opinion. Therefore, the uncertain position of key players in the run-up to the December summit of OPEC is putting pressure on oil quotes and, accordingly, on commodity currencies.The Canadian dollar will continue to follow the oil market. The situation in the US stock market is more likely to influence the position of the US dollar and in the context of USD / CAD only strengthens the northern dynamics of the pair.

Exchange Rates 22.11.2018 analysis

From a technical point of view, further price increases are expected. And on all the "older" timeframes, D1, W1, and MN. Thus, on the daily chart, the pair exceeded the upper line of the Bollinger Bands indicator, and the Ichimoku Kinko Hyo indicator formed a bullish signal "Parade of lines". On the weekly chart, the priority of the northern scenario is also visible. The pair also broke through the upper line of the Bollinger Bands indicator and the Kumo cloud. The monthly chart shows that the pair has impressive growth potential, up to the level of 1.3590 (the top line of the Bollinger Bands). If Brent and WTI continue to lose their positions, the Canadian can reach this target in the medium term.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Irina Manzenko,
Analytical expert
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