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What next after oil prices jumped 10%?

Video Script

Hi everyone, the price of oil jumped nearly 10% in three days last week. After a big decline mid-month the price of oil has now done a complete U-turn and is flat for August. Interestingly, the same thing happened in forex markets with the oil-sensitive Canadian dollar. I explore what’s next for the price of oil and the Loonie as well as rundown the big events coming up this week on the economic calendar.


So again I’m looking at oil this week. FYI the spot price is tradable as a CFD with the ticker Brent Spot or WTI Spot. Now, on a technical basis, the price has bounced off its lows from May and just above the 200-day moving average. But is this a rally to sell into? or is the correction since July over- and the long term uptrend resuming?


Also when you next look at the chart of the Canadian dollar, you’ll be amazed at the symmetry of the days before and after the failure at 1.30. Expectations for the Fed at Jackson Hole were driving the US dollar, but I think oil prices explain the moves in the Loonie.


Of course, oil prices are function of supply and demand. On the demand side, the four-week average of the total product supplied in the U.S. rose to 21 million barrels per day, the highest since March last year. That shows Americans using oil in the summer driving season at the highest rate since the shutdown last year. There has also been a specific supply-driver with a fire in Mexico forcing an outage and a drop in oil supplies from the country.


These are short-term influences and will already be fading, so thinking about the bigger picture, the global economy needs to keep expanding at the pace currently expected for oil demand to hold up. Most economists expect the affects of government budget deficit spending from the pandemic and people returning to work to support the economy through next year. That should be a good thing for the price of oil.


But are these expectations already ‘baked into the cake’ as they say in market parlance? I’m keeping an eye on the Citi economic surprise index - something I’ve mentioned in past videos. The index just turned negative for the first time in a year - that means more economic data is missing expectations than beating them, both in the US and in G10 countries. If that continues, oil prices may have further to drop.


And guys, if you can take a second to slam that like button for the YouTube algorithm! It really helps let more people see these videos.


OK let’s round off with the economic calendar. Of course the first thing I must mention is NFP on Friday. These numbers will be viewed by the market through the lens of Jackson Hole and Fed tapering. The expectation is for 763 thousand news US jobs created versus 943 thousand last month. It’s a drop but still a big number and with the unemployment rate expected to go down to 5.2%, it should further the case for US interest rate hikes sooner rather than later. I’d also just mention for the first half of the week, the PMIs out of China, which could be drivers for the Aussie and New Zealand dollar as well as Chinese stocks, which have taken a pummelling in recent months but saw some big buying last week.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.

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