OPEC agrees on oil supply cut extension to end of 2018. Oil off high of day. USDCAD hovering near highs.

Summary

• OPEC MEETING: All eyes are on OPEC meeting that’s underway right now in Vienna.  Moments ago Bloomberg reported that OPEC ministers have agreed to extend their oil production cuts to the end of 2018 (essentially agreeing with the Saudi-proposed 9 month extension that’s been widely reported this week.  The reaction from markets so far has been muted.  Jan crude oil dipped about $0.30-0.40, but is now up near the highs of the European session, just below $58.  USDCAD is not moving at all, and remains near the highs for the month (which the pair made earlier today in European trading).

• ECONOMIC DATA UPDATE: German CPI comes in at +1.8% YoY, slightly higher than expected.  The second look at US Q3 GDP comes in slightly higher than expected as well (+3.3%).  China’s Manufactuing PMI beats consensus of 51.4, coming in at 51.8.  German employment figures disappoint with 18k jobs lost (that was more than consensus and lower than last month’s number).  Eurozone CPI comes in at +1.5% for Nov, weaker than expected.  There are two data points to note for today’s US session: US PCE for Oct (+1.4% expected) and the Chicago PMI (62.3 expected).

• CENTRAL BANK SPEAK: Yellen’s comments yesterday didn’t offer up anything surprising for traders but we did see some USD buying intra-day as she spoke.  Yellen sounded bullish on the US and the global economy but reiterated her concerns about weak inflation.

• CME OPEN INTEREST CHANGES 11/29: AUD +2776, GBP +6805, CAD +941, EUR -6310, JPY -5444

• USDCAD: Dollar/CAD continued its march higher yesterday, supported by improved technicals, widening US/CA 2y yield spreads, and cross buying (especially against GBP).  OPEC is obviously the thing to watch today, but so far the reaction from oil traders has been muted, and so USDCAD traders have their focus elsewhere for the time being.  Technically speaking, USDCAD has now broken out to the upside from its triangular consolidation over November.  It’s trading above all the near-term resistance noted on our charts, which means a test of the 1.2920s (the 50% Fibo of the May-Sep downmove) is a very real possibility.  We would argue it needs to happen sooner than later though, as EURCAD and GBPCAD (the biggest influences on USDCAD as of late) have had tremendous runs in the last few days and we might get some profit taking there.  A firm close above 1.29 today would confirm the bullish trend for USDCAD.  A reversal back into the mid to high 1.28s would be negative technically but we see support in the low 1.28s on dips.  A reminder that there is a large option expiry today at 1.2850 ($1.4bln USD).  Canadian GDP/Employment figures are reported tomorrow.  Hearing talk now of barrier options at 1.2950.

• AUDUSD: The Aussie has had a bit of a volatile overnight session.  It rose in Asia on the better than expected China PMI but sunk down with EURUSD and broad based USD buying through Europe.  Technically, we’re range-bound (0.7550-0.7600) with a downward bias.  Copper is finally finding a bid after a three day collapse in prices.

• EURUSD: Option expiries indeed kept EURUSD contained yesterday and it looks like it’s going to be more of the same today with almost $3bln EUR rolling off in the 1.1840s.  Selling in the 1.1870s earlier coincided with the double-whammy of negative headlines (weak German jobs and weak EZ CPI).  Technicals suggest a near-term range of 1.1810-1.1860.  A firm daily close back above the 1.18s would reignite the bull train here.  Option traders are still reporting steady upside demand for EUR calls.  Cross flows are a mixed influence today with EURGBP continuing to provide a drag, while EURJPY finally finds its legs and rallies.  The US/GE 10yr yield spread is a touch wider, at 200bp.

  GBPUSD: Sterling traders continue to celebrate Tuesday’s bullish trading pattern and continue to push GBPUSD higher for the second day in a row.  While the UK’s Theresa May still denies settlement of the Brexit divorce bill and while others will argue there are still big issues to be resolved (ie. Ireland border issue), there has been a notable sea-change in market sentiment (Brexit optimism).  GBP continues to rally across the board (vs. EUR, CAD and JPY) and the long trending put bias in risk reversals is even starting to reverse.  GBPUSD technicals continue to improve, with the market now testing the upper bound of a trend-line extension channel from the spring (1.3470s).  We would not be surprised to see a little pull-back here after this most recent two and a half day run, but we’re now focused on upside targets in the pair.  A strong close above 1.35 would be very bullish.

Market Analysis Charts

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AUD/USD Chart

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About the Author

Erik Bregar - Trader

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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