As we learn about crude oil inventories today, we are likely to see a repeated build on Cushing and general inventories. After all, the tankers arriving in Houston are starting to unload, and the supply glut in crude oil is expected to start being more seriously felt once again.
Data from China suggests that China’s demand for oil is fading and should start decreasing more significantly soon, and weak economic data coming from the Eurozone also signals just how anemic the world economy is – which is bad for oil, in a world where production levels and inventories outweigh any demand for this commodity. Also, Iran’s oil is making its way into the market, adding to the downward pressure that we believe that oil should feel.
That is why, as we have been pointing out, Ridge Capital Markets believes that crude oil is only one step away from meeting its short-term reality – and that’s bearish.
The MXN and the COP, for example, have already began showing signs of retreat against the USD, and so have the CAD and the NOK – oil currencies which should go on losing the ground against the USD that they have recently gained.
The DXY has shown signs of a comeback yesterday, after going as low as 92.50, and we believe that this is a signal showing an inversion in two stories: strong oil and weak USD against oil currencies. We maintain that these are about to be reverted back to the levels previously seen in early 2016.
In the face of this, Ridge Capital Markets finds renewed reasons to reaffirm our bullish USD views, and we believe that traders can profitably go long any of these currency pairs: USD/CAD, USD/NOK and USD/MXN – as oil’s correction has a long a way to go to be reflected on these oil exporting countries.
In a nutshell, it looks like oil is finally meeting reality – and currency markets are about to feel its effects, once again. Trade accordingly.