Closing EUR/CAD shorts and focusing attention on oil

The EUR/CAD long idea from 12 July hasn’t reacted as suspected given the deterioration in the oil price, but we also haven’t seen a daily close through $1.4300 and therefore I am keen to utilise the capital for other trades and close the trade (currently $1.4541) for no loss.

Source: Bloomberg

Moving away from the FX market, the daily chart of US crude is looking increasingly bearish on any timeframe. Focusing on the daily chart we can see price has broken through the support level of the bull flag pattern and is gravitating lower and holding below the 5-day EMA (exponential moving average). On the momentum side we saw a close through the 38.2% retracement of the February to June rally overnight and this really defines that the bears are in total control here.

The clear downside targets are now $40.00 (which is also the 50% retracement of the aforementioned move) and then $37.13. It’s also worth highlighting that oil is a touch oversold in the short-term so short entries could be more compelling on a rally into $43.00.

Fundamentally, a number of the bullish factors that caused such strong appreciation from February have started to reverse course. From October 2014 to May 2016 we saw the US Baker-Hughes drill rig count collapse 80% in response to falling oil prices. We have seen the rig count increase by 41 over the last four weeks. We have also seen gasoline inventories increase for the past three consecutive weeks, the first three week gain since January. Overnight we have also seen a strong miss to the weekly official oil inventory report, with the market positioned for a drawdown, when in actuality we saw an increase of 1.67 million barrels.

Oil should firmly be back on the radar given the implication this could have on global equities and inflation.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.