Mexican Peso and the Price of Oil both Strong

Daily Analysis - 15/01/2018

Mexican Peso and the Price of Oil both Strong

The continuing price strength of crude oil is impacting the Mexican Peso by strengthening it against the USD. Wheat prices took a dive right before the close on Friday. Unicredit the Italian banking firm is very strong and rising.

Oil Rises

The rising trend in crude oil is stronger and continuing. We anticipate that the trend is likely to reverse and we look for that reversal at the price of 63.00. Below this point we anticipate continued falls to the 61.50 level and so on down to the mid to low 50’s. This is due to the still staggering amount of excess crude (about 1.225 M bbl. The long term average is around 1.0m bbl.) held above ground in the US. This despite last week’s 526.99% larger than expected decline in inventory stocks reported by the International Energy Agency in their weekly Crude Oil Inventory Report that was out Wednesday. We are of the opinion that these prices are too high given the demand levels and supply situation worldwide. Also as the high price persists, the likelihood that the OPEC cartel will face more cheating by violation of production quotas increases proportionately. Should this scenario fail to materialize, or take longer than expected to set up, we believe that prices in the range of 62.00 to 63.00 will indicate continuation of this overbought, i.e. too high, price level. In the short term, today and the early part of this week, oil UP.

Mexican Peso gains Strength on Correlation to Oil Price

As is often the case when the price rises in a commodity upon which an economy is heavily dependent, the value of the currency of that economy coat tails the strength of the commodity and strengthens in train. Such is the case for the Peso. Pemex, the Mexican oil monopoly is pumping vigorously into the market, taking advantage of the OPEC cartel’s production restrictions and resulting price manipulations to capture a windfall. Remember Mexico is not part of the cartel and therefore is not bound by its restrictions, though she benefits from its manipulations. Cartels are very interesting economic and human phenomena. Game theory is the place to go to understand these machinations. But understandable they are and using that understanding to trade on the moves and intentions of a cartel are generally quite profitable. We will be presenting deeper insights into this rare, well understood mechanism in the near future. In the meantime, USDMXN DOWN.

Wheat UP after Overdone Fall

On Friday, following the US agriculture Department’s latest crop report, the wheat price literally fell like a stone. Too much we believe. What market technicians call oversold. Meaning that the price reaction was extreme and likely to adjust back to a more balanced level. The report after all indicated that plantings and inventory levels receded, in other words lessened producing what would have been an increase on price levels. Rather an overreaction caused the price to plummet and from which we believe the price will recover today. Be careful when trading the field crops. They can be very volatile as there are tremendous sized accounts and vast agricultural interests trading in this market. Wheat UP.

Unicredit Continues its Upward Direction

Italian banking concern Unicredit continues making strong upward moves. The Italian banking sector has seen some mighty consolidations of late and these are seen as generally strengthening the sector. Italian banks are, despite their image of slovenly management and sloppy planning actually fairly well capitalized and relatively liquid. The consolidations in the market have favored those banks that took the risk of investing further into the sector. Unicredit is one of these institutions and well worth a long term positon because we see the trend in this asset as likely to continue.

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