08.02.201813:35 Forex Analysis & Reviews: NAFTA and oil are two problems of the Canadian dollar

The Canadian dollar is at the mercy of oil quotes and prospects for NAFTA. Good data on GDP growth of the country could not support the national currency, after which the pair USD / CAD returned to the January positions in the area of the 25th figure, especially against the background of the strengthening of the US currency. However, the future fate of the Canadian weakly depends on the behavior of the US dollar. The "luny" will become cheaper if the oil market continues to fall, and negotiations on the North American Free Trade Zone will finally end in failure.

The basic reason for the weakening of the Canadian currency is the problems in the oil market. Now Brent approached the psychologically important target of $ 65, the breakthrough of which will open the way to the 60th figure. The fundamental background contributes to this process. Although, to be more precise, at the moment the tool has no tangible reasons for growth. But there is plenty of information for the return movement. Uncertain attempts to raise the price (up to $ 67 per barrel) against the background of data on the reduction of US stocks of raw materials have not been successful. The forecast of the US Department of Energy on the average daily production (10.5 million barrels) put an end to the northern price retracement. The Ministry of Energy increased the forecast not only for this year, but also for the next - about 11.1 million barrels per day.

Also, a surge in oil prices was associated with information about a possible US embargo on the sale of oil and petroleum products from Venezuela. This probability was allowed this week by US Secretary of State, Rex Tillerson. Undoubtedly, such a scenario will affect the total world output. Despite the fact that at the end of last year, the production of oil in Venezuela was record-breaking, daily production still remains at a relatively high level - 1.75 million barrels (before the crisis in this country, the figure was at 2.5 million barrels). Thus, the embargo of Americans, who are the main buyers of Venezuelan oil, may affect the overall situation in the oil market.

But here, it should be noted that Tillerson's threats are only an element of political pressure, and the State Department does not hide this. Maduro regime, according to the US, does not comply with the Constitution of the country, in particular, with regard to holding democratic elections. However, according to recent data, the Venezuelan president still reached an agreement with the opposition (which is oriented to the US) on the coordination of the election date. In other words, the "Venezuelan factor" has lost its relevance in the context of the impact on the dynamics of the oil market.

In general, the oil is under pressure from a number of factors: The strengthening of the dollar, the continued growth of drilling rigs and the already mentioned forecast of the US Energy Ministry regarding the volumes of daily production. Such a fundamental background indicates a high probability of a further decline in the oil market.

The second problem of the Canadian currency is the unpromising negotiations on the preservation of the North American Free Trade Agreement. On the eve of the penultimate round of talks, Canadian Prime Minister Trudeau announced the expected breakthrough, but his last appearances are less optimistic. Following Mexico, he stated that he would not support a "bad deal", and in case of unacceptable demands from the Americans, Canada would withdraw from the Agreement.

And after all, Americans are making unacceptable conditions for their trading partners, especially in the field of the agrarian and automotive industry. In total, according to David MacNaughton, the Canadian Ambassador to the United States, there are about five "critical issues" in the negotiators' camp, a compromise on which has not yet been found. Thus, Canada, the USA, and Mexico at various times declared that they are ready to leave the deal and since then the parties have not come to a common understanding of the updated agreement.

The main "deadline" of negotiations is in March, as the presidential election campaign should begin in late spring in Mexico. Therefore, if during the next three weeks, the tripartite group does not show a contractual capacity, the probability of NAFTA disintegration will increase significantly.

Thus, cheap oil and a possible break in the free trade deal are putting quite a lot of pressure on the Canadian currency. The successes of the US dollar against this background play a secondary role, as do the indicators of domestic macroeconomic statistics.

Canada's GDP growth was almost ignored by the market, although the indicator rose from zero to 0.4% (monthly) and to 3.5% in annual terms. But traders, apparently, remembered the last meeting of the Bank of Canada, where the regulator focused on the uncertainty around the NAFTA. Now, against the backdrop of a decline in oil, external fundamental factors will again take precedence over internal makrostatistikoy.

That is why tomorrow's data on the Canadian labor market is unlikely to significantly affect the dynamics of the pair. Moreover, the preliminary forecast is unfavorable: the unemployment rate may slightly rise (up to 5.8%), but the increase in the number of employees may, on the contrary, decrease by two thousand (after a record two-month growth). Such dynamics will support the northern movement of USD / CAD.

From the technical point of view, the indicator Ichimoku Kinko Hyo on the daily chart shows one of the strongest signals "Golden Cross", at which the price was fixed over the intersected lines Tenkan-sen and Kijun-sen. And the Kumo cloud is still above the price chart. This signal indicates the upward direction of the pair. Also, the northern movement is confirmed by breaking through the upper line of the Bollinger Bands indicator, which began to expand its channel. The support level is the middle line of the Bollinger Bands indicator (coinciding with the intersected lines Tenkan-sen and Kijun-sen), which corresponds to the level of 1.2415. And the resistance level is the upper limit of the cloud Kumo - this is the price of 1.2705.