Market Drivers for April 18, 2016
Europe and Asia
NZD: CPI 0.2% vs. 0.0%
North America
No Data
The world's major oil producers failed to reach an agreement on a production freeze at this weekend's meeting in Doha, causing a sharp move lower in oil and commodity currencies at the start of the week's trade.
Oil gapped lower to $38/bbl but slowly worked its way back, trading above the $40/bbl figure by mid morning London dealing. Although the initial rush to sell crude was a natural reaction to the disappointment, the bounce back suggests that the bid for oil may be more than speculative in nature. One possible reason for the quick rebound was the fact that Kuwait oil production was taken off-line due to a strike by workers, and although reports are that the strike has been broken up and that workers from Egypt and Bahrain are being flown in, the sudden cutoff in supply could be have provided the bid for crude.
Still with no clear production cap in sight and with Iran coming online to pump as much crude as it can the downward pressure on oil may resume, especially if global demand does not pick up pace. Crude therefore may find a cap at the $40-45 corridor and that suggests that USD/CAD will likely find a bottom at the 1.2700-1.3000 level as prices begin to stabilize. So neither the bulls nor the bears may be right as commodity prices settle into a range and will likely keep the price action in commodity currencies contained as well.
Elsewhere, the earthquake in southern Japan caused a flurry of demand for yen as repatriation flows pushed USD/JPY below 108.00 and dragged the Nikkei lower by more than -3% after Toyota (NYSE:TM) announced that it would suspend production in that region, interrupting its supply chain. But once again the pair found buyers underneath that level as 108.00 clearly is the new support in the pair.
With no US data on the docket, equities and oil will likely drive trade for the rest of the day and with the buck refusing to go down over the past few days, any positive movements in equities could push USD/JPY towards 109.00 as the day proceeds.