A larger-than-expected build in crude oil and gasoline inventories reported by the US EIA (Energy Information Administration) led the decline in oil prices last week. Correspondingly, the Canadian dollar fell against the G10 currencies, including the British Pound. The 53-minute Brexit speech delivered by British Prime Minister Theresa May is seen as a straightforward message signaling flexibility to the European Union, in order to arrive at a mutually amicable trade deal. The EU may not respond positively to the speech immediately. However, the speech is expected the break the deadlocks. Therefore, the Pound is expected to begin the week at an advantage over the Canadian dollar.
Apart from a decline in the oil price, a decrease in the rig count is also affecting the Canadian dollar. The latest Baker Hughes report stated that Canada lost four rigs last week, after losing 12 in the previous week. While the oil rigs increased by two, the gas rigs decreased by six. However, in the US, the number of oil and gas rigs increased by 35 on a y-o-y basis and is currently standing at 981.
In its recent report, the International Energy Association has stated that the US oil production could reach 11mbpd in 2018. Furthermore, several OPEC members have indicated that they will increase production in the coming months. While Kuwait is planning to raise production by 0.225 mbpd to 3mbpd by end of March, Iraq aims to shore up its production to 5mbpd, from 4.6mbpd by year-end. Iran is also planning to increase oil production by 100,000 bpd after the production limitation deal expires this year.
The OPEC members will have a review meeting in June. However, the chances of an extension to the deal is slim as Russians are also interested in increasing production. Oil inventory levels are still above the five-year moving average. China is also planning to ban conventional cars by 2022. France, India, and several other countries will follow suit soon. So, the prospects of a rally in crude price are low. It is one of the reasons for the Canadian dollar to remain under selling pressure.
Canada is also one of the leading exporters of steel to the US. Therefore, Trump’s plan to slap an additional duty of 25% on steel imports has weakened the Canadian dollar. Furthermore, data released last Thursday also indicated a decline in Canadian asset sales and bonds in particular. A decline in the demand for Canadian assets is also expected to have a negative impact on the Canadian dollar, considering the country’s trade deficit of C$3.20 billion.
On Friday, Statistics Canada reported a 0.1% gain in real GDP in December, following a 0.4% gain in November. The reported figures were in line with analysts’ estimate. 13 out of 20 industrial sectors recorded gains. However, the market was unimpressed by the Q4 GDP growth of 1.7%, which missed analysts’ estimates of 2% growth. Notably, the Q4 first estimate of 1.7% GDP growth rate was also downwardly revised to 1.5%. While Canada’s GDP growth rate softened, the UK’s construction sector recorded impressive growth.
According to IHS Markit, the seasonally adjusted UK’s construction PMI (Purchase Managers Index) grew 51.4 in February, from the four-month low of 50.2 in the previous month. Analysts had expected a construction PMI of only 50.5. Therefore, economic data and decline in the commodity price favor a continuation of the rally in the GBPCAD pair.
As the price chart indicates, the GBPCAD pair is moving along the ascending trend line. Furthermore, both the on-balance volume and accumulation /distribution indicator is rising. Therefore, we can expect the current rally to continue.
Based on the analysis, in the Forex market, we may open a long position in the GBPCAD pair near 1.7920. As a responsible trader, we would certainly place a stop-loss order below 1.7780. If the GBPCAD pair gains ground as expected, then we would consider booking our profits near 1.8150.
For additional gains, we may also invest in a call option offered by a reliable binary broker. The option contract should remain active for a period of one week. We would also consider opening a trade only if the currency cross trades near 1.7920 in the Forex market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
