Oil and Currency Analysis: Impact of Inflation and Market Sentiment
WTI Crude Oil and USDCAD: Technical Picture and Fundamentals
The WTI crude oil futures contract and the USDCAD currency pair both have a limited track record in terms of response to inflation updates and display strong congestion patterns. The technical aspect of US-based crude oil is linked to the outlook for economic health, with a potential for increased demand for the commodity in case of an improving global economy. However, the commitment to a genuine economic upswing remains uncertain. In light of recent discussions on crude oil output reductions by Russia and the upcoming release of the Consumer Price Index (CPI), the White House has reportedly planned to sell 26 million barrels from the Strategic Petroleum Reserve. The news has kept WTI crude oil below the trendline resistance at 80.00 and the 100-day Simple Moving Average at around 81.00.
Market Sentiment: Net Short Positions and Retail Interest
Resistance in the market may have been reinforced by conflicting views on supply and demand, but an eventual break is inevitable. From the Commitment of Traders (COT) report by the CFTC, the net long position of crude oil among the larger speculator class is near the lowest seen in 7 years. On the other hand, retail interest via IG CFD trading leans towards short-term swings, with a positive net long position that has decreased from its recent peak.
Crude Oil and USDCAD: Historical Correlation
There is often a historical correlation made between the performance of crude oil and the USDCAD exchange rate, as Canada is a major exporter of commodities including crude oil and the US is a large importer of raw materials such as petroleum products. However, the scale of supply from Canada to the US does not significantly affect the globally priced commodity. Currently, USDCAD is near the floor of its descending triangle pattern but has enough room to absorb a potential CPI surprise.
USDCAD and US CPI Release: Technical Effectiveness and Retail Trading
The USDCAD currency pair is known to experience volatility in response to the US CPI release, but the technical impact raises questions. The past eight months of retail trading activity suggests that traders are comfortable with trading within the range. The August release on September 13th led to a Dollar rally, but the break above 1.3200 happened days later and in a less-than-distinct manner. Similarly, the dramatic October drop in inflation reported in November led to a big drop for USDCAD, but former resistance at 1.3200 became new support.
Change in Longs, Shorts, and Open Interest: Daily and Weekly Comparison
The change in longs, shorts, and open interest shows a 19% increase in longs and a 9% decrease in shorts on a daily basis, with a 6% overall increase. On a weekly basis, there has been a 55% increase in longs and a 35% decrease in shorts, resulting in no overall change.