The recent OPEC decision or "no decision" has plunged commodities currency loonie or CAD from all its gains accumulated for the last 2 weeks against the greenback USD.
Remember in my first post that I'm a minor fundamental analyst too? The OPEC's decision has a high impact on commodities currency. If you solely traded on technical analysis, we might have been given the false signal that the CAD will continue on a bear streak with its strong CPI and GDP figures.
A vast amount of revenue that Canada receives comes from its oil export towards the United States standing about 85% of all oil extracted in Canada. With the recent technology advancement of using horizontal drilling and hydraulic fracturing, oil can be extracted at a increased rate so much so that the supply of oil has surpassed the demand in oil. A surplus results in lowered price as aggregate supply exceeds aggregate demand.
With a lower oil price, Canada's overall revenue and economy will be hurt by the oil price eventually. Despite the recent good reports, the scale of the impact on Canada cannot be measured directly yet taking into consideration that most big companies that are consumers of vast amount of oil hedge their positions against potential oil price movements. With the price falling to $68 per barrel, these companies will demand a hedge position contract near $68 per barrel. And the full scale impact on the GDP of Canada can only be seen after the current contracts expires if the OPEC does not work together towards a new resolution.
By the outlook of the biggest oil nations in the world, a possible resolution looks unlikely to happen in the near few weeks. Seems like forming a committee of the biggest oil players doesn't equates to "we will work together" but rather "to each his own and his own agenda". A reversal of oil prices will likely only occur when companies that rely on high production cost begin to fold as cost of production exceeds the cost of profit. This will likely not happen so soon too as these companies will probably cry out to the government for help before ultimately folding. Another possible way could be for nations that are willing to work together to boycott uncooperative major players exportation by establishing import bans. This however causes too much political tension.
My take is that oil price will remain bearish for a extended period of time and traders in USD/CAD pair need to be careful when going short.
I did however managed to trade the USD/CAD and entered a long position at 1.1340. Based on the below chart, we see that the USD/CAD has formed a new support line along 1.1340 for a extended period of time with a indecisive pattern, with such a strong fundamental issue, the possibility of a uptrend outweighed the risk of a downtrend and hence a long position is favorable with a stop loss if price falls below the resistance line.
I however closed the trade at 1.377 with a profit of 30 pips. Why so early? I stick to my plans on the R/S lines drawn by me and conservatively take profit. With the USD/CAD extending such a long run, the possibility of a pullback is much higher and hence it exceeds my risk tolerance. Remember always that the key is to STICK to your plan.
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