Contradictory forecasts for oil & the Bank of Canada decision

10 Jul 2019

The dollar we recommend to sell against the main currencies duo to reasons absence (we still see no reasons for the Dollar Index new highs ).With the exception of the Canadian dollar. Extremely weak data on the labor market in Canada, published on Friday, amid excellent statistics on NFP from the United States, together with today's meeting of the Bank of Canada, can create ideal conditions for the pair to grow.

Tightening monetary policy followed by the Bank of Canada however the gradual economic slowdown multiplied by the Fed's intentions to lower the rate, provide serious prerequisites for changing the vector of monetary policy. Well, today the rate is unlikely to be lowered, but there is a chance for this. This will harm the Canadian dollar, so today we will buy USDCAD. with, at least, 200-300 points, and stops set below 1.3050.

Against the rest of the "major" currencies, we will sell the dollar. It is primarily about the Japanese yen, as well as the euro and the pound. Do not forget about Testimony of Fed Chairman Powell in Congress, which is quite possibly accompanied by important statements for the dollar.
Future of oil price, that is a good thing to think about, therefore analysts have divided into several groups with a different view of the situation. Some (for example, analysts at JP Morgan) say that OPEC + creates prerequisites for the redistribution of market shares: OPEC + countries essentially “give” some part of their market share to the US and other countries that are not participating in the agreement. So, the oil team from the United States receives carte blanche for further rapid development. As a result, the total supply in the oil market does not fall. At the end, when the OPEC + participants start to engage in their market share and decide to “unscrew the tap”, this will only lead to a decrease in oil prices. That is a new reality is currently being formed on the oil market, in which the fair oil price is not $ 100- $ 120, but $ 60- $ 70. And it is likely that in the foreseeable future, this ceiling will fall to $ 30- $ 40.

However, there is an alternative point of view. For example, the Saudi Minister of Energy believes that the situation will evolve according to the classical theory of cycles, which means that the current cycle will soon reach a peak, then change to stagnation, and then come down. In Geopolitics Central, they recall the threat of a military conflict between the US and Iran, which could lead to Iran blocking the Strait of Hormuz. And this will provoke a strong shortage in the oil market and, as a consequence, sharp rise oil prices rise.

We are of the opinion that was voiced by analysts J.P. Morgan. The world has changed and it needs to be accepted. The shale revolution (from the supply side and the transition to alternative energy sources from the demand side ) have radically changed the balance of power in the oil market. And the attempts to “measure it” by the out-of-date methods are largely doomed. So we continue to recommend oil sales.

Our other trading recommendations are unchanged: we sell the Russian ruble, and for gold, we work without any special preferences - buy from hourly oversold zones and selling from overbought.