Energy & Commodities
There has been much talk of stimulus and easing quantitatively since the 2008 financial crisis. Helicopter Ben created four trillion dollars of Monopoly money on the Fed’s balance sheet, President Obama spent another trillion (although the money was primarily wealth redistribution for government coffers and very little went to actual infrastructure spending), interest rates have gone negative in many developed countries due to monetary policy, and now the European Central Bank is firing up its printing press to fight the dreaded deflation in the Eurozone.
What has all of this smoke and mirrors gained us – Debt, Debt, and more Debt. The problem is we don’t even know how all of this fiscal and monetary manipulation will resolve itself. One could be forgiven for thinking this will not end well. But there is good news! The Lone Ranger riding to save the economic day is good old North American technology, hard work, and entrepreneurship. It’s called the shale oil boom.
Politicians talk of stimulus. Really what they mean is taking money from one person to give to another (to someone usually who will vote for them to be re-elected). However, did you know that the average family in poverty spends the largest portion of their income on energy? In some cases upwards of fifty percent? What if you could significantly reduce their energy bills? What if you could add ten, twenty, or thirty percent to their annual income, without spending any money? Talk about an economic stimulus! At the same time, what if you reduced corporate expenses significantly as well? With that type of monetary injection, maybe small businesses and large corporations alike would start spending again. Maybe, they would start hiring again. Maybe economic growth and unemployment would start to improve despite misguided government policies that encourage economic stagnation and malaise.
This is what is happening today, in front of our eyes. The private sector is riding to the rescue as only capitalism can, to save us from our Keynesian death spiral. Oil prices are plummeting, providing real economic stimulus to the world economy. The fact that there is an added benefit of depriving aggressive dictators of oil revenue to instigate trouble is a nice bonus. This is all happening in spite of the American government’s best efforts to stop it (but that won’t stop them from taking credit).
Entire global orders are being disrupted. The Middle East is just now trying to come to grips with the new energy, and therefore power, realities on the world stage. Despite their soon to be announced efforts at collusion to prop up oil prices, North America will keep on pumping. The Keystone Pipeline will be constructed within a few years. LNG terminals will be approved in the U.S. like casino permits on the Mississippi. North America is here to stay as the largest energy producing region of the world, at least in our lifetimes. The world has only begun to realize this new paradigm.
How will this new reality effect the USD and the Loonie? Most likely, North American economic growth will accelerate, interest rates will have to rise, and this will add to the bid for these currencies. We have written much over the last few years about the loss of reserve currency status for the USD and the danger of overwhelming American sovereign debt. However, we are just now realizing the strength and ferocity of the shale oil explosion and its effects on global markets. Perhaps shale oil will save America from herself. Hi Ho Silver, away!
Written by Agility Forex writer Todd Wood
Andrew is the founder and CEO of Agility Forex, specialists in no-fee online currency exchange and cross border transfers.
On the heels of continued volatility in the gold market, the Godfather of newsletter writers, 90-year old Richard Russell, put out a quick note on the fierce trading action in both gold and oil. The 60-year market veteran also included his thoughts on how this will impact the Fed’s key decision-making policy.
….read it all HERE
When investors are ‘reaching for yield’, it’s a sure-fire warning sign.
It’s something that financial historian Russell Napier highlights in his interview with Merryn Somerset Webb this week.
Past experience shows that when investors get desperate, they’ll start lending money to any old enterprise with a good story, as long as it promises some sort of ‘real’ return.
When investors become that indiscriminate about where they put their money, you can be sure that something will happen to burst their bubble sooner or later.
And the an oil price crash might just be the thing to do it.
Investors have been lending rather too freely to high-risk companies
It’s been a great few years for ‘junk bonds’. As the name suggests, this is the risky end of the bond market….continue reading HERE
The Reserve Bank of Australia left its benchmark interest rate at a record-low of 2.50%, which pushed the Australian dollar higher against the greenback. As a result, AUD/USD bounced off yesterday’s fresh 2014 low, but will we see further rally?
EUR/USD
The medium-term picture hasn’t changed much as EUR/USD is still trading around the 127.2% Fibonacci extension. What can we infer from the very short-term picture? Let’s examine the daily chart and find out.
Looking at the above chart, we see that altough EUR/USD moved higher yesterday, the combination of the lower border of the rising trend channel and the declining blue resistance line stopped further improvement, triggering a pullback earlier today. What does it mean for the exchange rate? In our opinion, as long as the blue resistance line is in play, a sizable rally is not likely to be seen. Additionally, when we take a closer look at the daily chart, we can see that the exchange rate has been trading in a triangle (marked with blue) in the recent days. This means that if the pair drops below the lower line of the formation, we’ll see a test of the strength of Nov 25 low of 1.2399. However, taking into account the height of the triangle, it seem that we could even see a drop to the recent lows in the coming week.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
USD/CAD
Larger Image
Larger Image
The first thing that catches the eye on the above chart is a breakout above the upper line of the declining trend channel. In our Forex Trading Alert posted on Nov 24, we wrote that such price action could trigger an increase to around the Nov high, which turned out to be correct. Despite this improvement, the strong resistance area seen on the weekly chart (created by the upper line of the rising wedge and the 127.2% Fibonacci extension) successfully stopped further rally. As a result, USD/CAD reversed and declined sharply to the short-term green support line (based on the Sep 19 and Oct 29 lows). As you see on the weekly chart, with this move, the exchange rate invalidated earlier breakout above the upper line of the red rising trend channel – similarly to what we saw at the beginning of Nov. Back then, such price action triggered a correction, which suggests that we could see further deterioration in the coming week. In our opinion, this scenario will be even more likely if the pair drops below the above-mentioned short-term green support line. In this case, the initial downside target would be around 1.1265, where the 23.6% Fibonacci retracement and the previously-broken upper line of the declining trend channel (marked with brown on the daily chart) are. Nevertheless, taking into account the current position of the indicators (the CCI and Stochastic Oscillator generated sell signals), it seems that currency bears will try to go lower in the coming days. If this is the case, the next target would be the bottom of the previous correction (the Nov 21 low of 1.1190).
Before we move to the next currency pair, we would like to draw your attention to the link between the Canadian dollar and crude oil. In the previous week, the Canadian currency moved sharply lower against the greenback weakened mainly by falling oil prices. Meanwhile, yesterday’s rebound in the commodity had a positive impact on the Canadian dollar and strengthened it against its U.S. counterpart. What does it mean for USD/CAD? Taking into account the current picture of crude oil (you can read more about it in our Oil Trading Alerts), we think that the loonie will increase, which will translate to the lower values of USD/CAD in the coming days.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
In our opinion, the following forex trading positions are justified – summary:
AUD/USD
From this perspective, we see that AUD/USD extended losses and hit a fresh 2014 low yesterday. With this downswing, the pair reached the 127.2% Fibonacci extension, which could pause or even stop further deterioration. The reason? Many times in the past this extension has triggered a trend reversal (you can see an example of such price action on the weekly chart of USD/CAD). Therefore, taking into account the fact that history repeats itself and combining it with the current position of the indicators (the CCI and Stochastic Oscillator generated buy signals), it seems that we could see a rebound from here in the coming days. At this point, it’s worth noting that this scenario is also reinforced by the medium-term picture.
As you see on the weekly chart, although AUD/USD broke below the 50% Fibonacci retracement based on the entire 2008-2011rally (a bearish signal), the lower border of the long-term declining trend channel is quite close and it seems strong enough to stop further deterioration in the coming week.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
Thank you.
Since putting in a major peak back in mid-June, crude oil has declined over 36%. For some insight into how this significant drop in the cost of crude has impacted the stock market, today’s chart presents the ten best performing Dow sectors (out of more than 100) since the decline in oil prices began in earnest less than six months ago. The outperformance of the ten sectors illustrated in today’s chart lend themselves to a few themes. First, health related sectors (e.g. biotechnology, healthcare providers and medical supplies) proved to be a healthy bet as baby boomers continue to move into retirement age. Also, transportation (e.g. airlines and trucking) headed in a positive direction — a direct beneficiary of lower oil prices. Finally, consumer goods related sectors (e.g. footwear, durable household products and furnishings) proved to be a good buy as investors anticipate lower shipping/transportation costs. The performances of each of the sectors illustrated in today’s chart are especially compelling considering that the S&P 500 gained a relatively modest 5% during the same period.
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