TechnoMeter

The bid in Crude Oil over the last few sessions has been welcomed news for CAD longs, which benefit when USD/CAD falls. However, the news out of the energy market may not stay supportive for long. On Thursday, OPEC raised their 2017 estimate of supply growth from non-OPEC producers (i.e., US Shale) by 46%, which is a direct threat to the supply curbs put in place by OPEC and Russia and expected to be extended to help rebalance the market. While there has been a bounce in Crude Oil over the last few sessions, hopeful bulls should be reminded we traded at 5-month lows last week, and we continue to get information showing that global demand may be falling, not rising as total supply is not falling as much as originally planned.



In local news for Canada, an overnight headline from the credit rating agency Moodys provided plenty of worry for long-term Canadian Dollar bulls. Moody’s downgraded six Canadian banks amid concern about “a more challenging operating environment for banks in Canada for the remainder of 2017 and beyond, that could lead to a deterioration in the banks’ asset quality, and increase their sensitivity to external shocks.”

Despite the recent concerns, USD/CAD has yet to trade above the May 5 and 2017 high of 1.3793. However, the recent volatile price action and discouraging undertones for drivers of CAD value may favor further CAD weakness and USD/CAD upside. The short-term zone of support for the uptrend is 1.3598 (December 28 high) and 1.3875 (38.2% retracement of the April-May range.) Should the price continue to close above this zone on a daily basis, the current sideways price action is preferred to be seen as a precursor before a move to new 2017 highs and toward the long-term target of 1.3838 (61.8% Fibonacci retracement of the 2016 range.)

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