It's All About Oil

Forex News and Events

The oil markets are focused on OPEC meeting due on November 27th. WTI futures trade water at about $75, Brent crude at $80. Rumors that OPEC may delay the production cut should keep the upside limited until Thursday. Iraq, Iran and Libya should be exempt of cuts in any scenario. The CBR inject 200 billion ruble in a fine-tuning operation to provide liquidity today. The Loonie trades in wait-and-see mode before the Canadian retail sales and US GDP data, yet only minor moves are expected on economic data. Should the OPEC keeps the production steady, USD/CAD should break into fresh bull market.

OPEC may delay production cut

Thursday’s OPEC meeting is one of the most expected events of the week. There are rumors that some OPEC members will be willing to cut outcome to sustain prices, while the delay in Iran-US nuclear talks may also have a deferring impact on OPEC decision. With US production expanding in record high levels (9 million barrel per day according to Nov 14th data), no one can guarantee that a production cut from the OPEC members will sustain the oil prices. It may however lead to a market share loss and we are not sure the OPEC will take this risk. Russian energy minister Alexander Novak said his country is already sustaining the oil market by keeping output stable, adding, he sees little chance of agreement to cut production at Thursday’s meeting.

This being said, the bear market could further develop following Thursday if OPEC decides to move on with steady supply. OPEC supplies 40% of world’ crude markets and produces 30 million barrels a day since January 2012.

The CBR injects 200 billion ruble to stabilize FX conditions

The oil currencies are weaker before the OPEC meeting. After recovering to 44.3641, the USD/RUB is back to its 21-dma (45.2365) today. In an official communication, the CBR announces to “conduct a fine-tuning operation on 25 November 2014 against the background of demand for the banking sector liquidity significantly exceeding its supply due to tax payments”. The CBR will inject 200 billion rubles “aiming at limiting speculative activity and stabilizing the FX market conditions”.

Loonie stay still before retail sales and US GDP

USD/CAD remains ranged in November downtrend channel (1.1202/1.1342), while upside pressures, mostly due to oil-markets, intensify. Due in the afternoon, the Canadian retail sales and US GDP should give some direction to USD/CAD. Markets expect improvement in headline retail sales in September (+0.5% m/m expected verse -0.3% last), while the US GDP is seen weaker in 3Q second read (3.3% q/q annualized vs. 3.5% last). If this is the case, the North American data should boost CAD-hawks however should not damage the key technical levels. Decent support is eyed at 1.1192/1.1225 area (Nov 21th post-CPI reaction low/50-dma) as long as the OPEC uncertainties persist.

This week’s decisive event is certainly the OPEC meeting on Thursday. Should the OPEC countries refrain to take action to sustain oil prices, the USD/CAD should break above the November descending channel to enter fresh bull market.

EUR/CAD rebounds from 1.38862, slightly above the Fibonacci 50% support on 2012-2014 rally (1.38577). The 3-month 25-delta risk reversals stand at -23 bps, signaling the slight market bias toward EUR/CAD puts. The concerns on sliding oil should overcome the QE pricings in the EZ and keep the cross bid above 1.38862/1.40000 zone.

USD/CAD aprroching declining channel top