OPEC holds its ground but can WTI and the Canadian Dollar do the same

OPEC holds its ground, but can WTI and the Canadian Dollar do the same?

The outcome of the OPEC+ meeting was a bit of a surprise! Given the rise in oil prices, particularly since February 1st, WTI prices have risen over 20%! Many analysts had forecasted that the rise in crude prices, combined with the decreased supply and the increase in expected demand, would be enough for members to raise output anywhere from 1.2 million barrels per day to 1.5 million barrels per day. Anything less, and the markets would be disappointed. However, at the conclusion of today’s OPEC+ meeting, ministers decided that it would be best to leave current output UNCHANGED! As a result, WTI crude prices rose 6% at one point today to its highest levels January 9^th, 2020, near 64.785 (and completed its flag pattern target!). The January 9^th, 2020 highs acts as first resistance at 65.66.

Source: Tradingview, City Index

EUR/CAD has been highly negatively correlated to the price of WTI oil since the beginning of the year. (With Fed Chairman Powell’s comments regarding monetary policy today, it’s best not to use USD/CAD for Canadian Dollar analysis, due to today’s volatility in the US Dollar). Notice that the correlation coefficient between EUR/CAD and WTI flipped from positive to negative on January 8^th. Although the negative correlation has weakened a bit since February (-0.86 lows), it is currently strengthening again, currently at -0.62. EUR/CAD has been in a downward sloping channel since late July 2020. With the move higher today in Crude prices, EUR/CAD moved aggressively lower. The pair is currently testing the bottom, downward sloping trendline of the channel near 1.5150. Horizontal support from May 2020 below the channel crosses at 1.5050.

Source: Tradingview, City Index

On a 240- minute timeframe, EUR/CAD has formed a shorter-term downward channel of its own, briefly breaking below in mid-January. The pair is currently testing the bottom of this channel as well. Notice that the RSI is diverging with price, indicating that the pair maybe ready to bounce (and that the bottom trendline may hold). Horizontal resistance is above near 1.5200 and 1.5230. Watch for bears to add to short position near these levels, in hopes of taking out weak longs below today’s lows.

Source: Tradingview, City Inbex

Click here to learn everything you need to know to trade the oil markets

The result of no change in supply from OPEC will result in markets focusing on the demand side of the equation for the next month. If the vaccine rollout continues to be strong, expected demand will pick up and prices should continue higher.

OPEC+ will meet again in April to discuss output.

Learn more about oil trading opportunities.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.