Oil Inventories In, USD Mixed Vs The Majors

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Today’s EIA Crude Oil Stocks report is in and inventory growth appears to be tapering off. Last week’s supply change came in at -0.745 million barrels, well beneath expectations (4.147M). The negative figure is a good sign that demand and production cuts are having a positive impact on the March/April supply glut. While most of the majors are unaffected, the USD/CAD is driving higher.

In addition to the EIA Crude Oil Stocks release, the U.S. premarket hours featured several inflation metrics. Here is a quick look at the data:

Event                                         Actual              Projected          Previous

PPI (MoM, April)                        -1.3%                   -0.5%                -0.2%

PPI (YoY, April)                          -1.2%                    -0.2%                 0.7%

Core PPI (MoM, April)               -0.3%                    0.0%                 0.2%

Core PPI (YoY, April)                 0.6%                       0.9%                 1.4%

This group of figures echoes Tuesday’s CPI release and lagging inflation continues to be a problem. Although the FED is denying all suggestions that interest rates may go below zero, one has to wonder if negative rates are a possibility. According to the CME FEDWatch Index, a prime rate of 0.0%-0.25% has a 99.4% chance of being reality until at least March of 2021. While this is an extremely dovish outlook, the Greenback continues to perform well versus the majors.

Majors Trade Sideways, USD/CAD Rallies Modestly

The USD/CAD is in the midst of a two-day winning streak. Will bidders make it three?

majors
USD/CAD, Daily Chart

Here are the key levels to watch in this market for the near future:

  • Resistance(1): 38% Retracement, 1.4164
  • Support(1): Bollinger MP, 1.4035
  • Support(2): Daily SMA, 1.4018

Bottom Line: In the event that the USD continues to show strength against the majors, a shorting opportunity for the USD/CAD will come into play. Until elected, I’ll have sell orders in the queue from 1.4159. With an initial stop loss at 1.4176, this trade yields 25 pips on a sub-1:1 risk vs reward ratio.

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