21.02.201814:24 Forex Analysis & Reviews: USD / CAD pair: Canadian is drifting towards 1.2725

Brent crude oil again could not hold above 65 dollars and shows the southern dynamics on the second day. The Russian ruble and the Canadian currency also took the course of easing, especially when paired with the dollar, which is trying to dominate the entire market.

In general, commodity currencies failed to hold partly because of possible restrictive measures by the U.S. regarding the import of steel and aluminum due to the the growth of shale mining. In turn, there is an additional unpleasant "bonus" for the Canadian dollar, which is uncertainty associated with the fate of the North American Free Trade Agreement (NAFTA). This situation gives the Canadian bulls the opportunity to approach the next resistance level at 1.2725.

Among the main reasons for the decline in oil prices is the boom of the shale oil production in the United States. The Ministry of Energy estimates that the shale production for the next month will increase to 6.8 million barrels per day compared to the almost 1.5 million barrels more than in the same period last year.

At the same time, the potential of the Perm basin is developing very actively. The reserve of production capacities in this largest shale deposit is comparable only with the volumes of Saudi Arabia. Large corporations also show interest in this raw material basin such as the Shell representative stated interest for the company in BHP Billiton assets in the Perm basin, as he wants to improve his position in the shale sector.

Also, it is not only the "slate boom" that weighs on oil quotes. The volume of crude oil reserves in the U.S. shows a positive trend for three weeks and this trend may continue. According to the survey of the experts, the figure for this week will show an increase of three million barrels. The release will be on Thursday, not the usual Wednesday schedule, because of the long-weekend holiday on Monday. If the forecast of experts is justified, the market will once again talk about the expediency or effectiveness of the OPEC + Limitation Treaty.

However, there is no consensus on this issue. Some of the commodity traders remain optimistic. According to them, the growth of the world economy will affect (and already affect) the demand for "black gold", so the remaining trends in the U.S. cannot change the overall fundamental picture in the market. Other experts see the situation differently. They believe that the oil market last year recorded an average deficit of about 500 thousand barrels per day. Therefore, the growth in the activity of Americans in 2018 will not lead to an overabundance, but to a state of balance. At the same time, the optimal price niche is $ 60-65 per barrel n their opinion.

It is possible to make different assumptions, but at the moment, two facts should be considered in the context of the currency market. firstly, the medium and long-term dynamics of oil quotations will depend on the position of key members of the Production Restriction Agreement particularly the Saudi Arabia, Russia, and the United Arab Emirates. There were no clear negative signals from them yet, as the Arab Emirates even expressed a desire to "extend the deal forever". The decisive meeting of OPEC + will take place only in June.

The second fact is the reaction of commodity currencies to the current statistics of the oil market, without projecting a long-term perspective. Oil reserves in the U.S. are growing for the third week in a row and the Canadian is systematically cheaper, not looking back at possible OPEC + decisions in June. Therefore, one should start from the dynamics of the reserves of "black gold" in the States and the increase in the number of drilling rigs with the releases are scheduled on Thursday and Friday, respectively, in consideration of a relatively short time period. The forecast for these indicators is negative for the oil market. Thus, Brent is unlikely to be able to overcome again in the near future and gain a foothold above the 65th mark. Commodity currencies, including the Canadian dollar, will respond to this fact accordingly.

In addition, the Canadian currency continues to be under pressure of uncertainty around the NAFTA. The next round of negotiations between the US, Canada and Mexico ended in vain. As noted by Canadian Foreign Minister, Chrystia Freeland, the main points of controversy in the negotiations concerning the automotive sector. This is not only about the production of cars, but also auto parts. Freeland traditionally did not disclose the details of the dialogue but admitted that the situation remains "very difficult" because of the position of the greenback.

NAFTA members will have another opportunity to agree with the penultimate round of talks to be held in Mexico from February 25 to March 5. However, most analysts on the market do not harbor unnecessary illusions. The agreement on the North American free trade zone is likely to cease in existing in the second half of this year.

Thus, despite the growth of key macroeconomic indicators of the country, the Bank of Canada is also forced to take into account external factors, including the uncertain situation in the oil market and the hazy prospects of the NAFTA.

All this determines the northern dynamics of the USD/CAD pair. Technically, the pair on the daily chart is trading above the Kumo cloud and between the middle and top lines of the Bollinger Bands indicator. This allows us to talk about the continuation of price growth to the first resistance level of 1.2725 found at the top line of Bollinger Bands on D1.