Oil Price Slide Resumes

Daily Analysis - 16/03/2015

Energy Prices Recommence Collapse as Output Continues to Soar

The carnage in the energy complex overnight has seen crude oil prices tumble as concerns of higher output from producers coupled with lacking demand force prices lower. Chronic oversupply and faltering economic forecasts are weighing heavily on the industry outlook.

Crude Oil at Lowest Level Since 2009

Even though the geopolitical outlook remains tense, energy prices are ignoring the uncertainty after both Brent and WTI crude oil prices took out major short-term technical levels that had seen prices elevated for several weeks. WTI slumped overnight as concerns about growing supplies and the reopening of Texas shipping channels saw prices fall just over a point at the open before recovering half the move. This marks the lowest prices since March 2009 when the US was in the depths of the last financial crisis. One factor that might be supportive of prices to the upside in the near-term is the growing possibility of an unexpected event in Saudi Arabia as oil installations are threatened. The United States has issued warnings to citizens traveling in Saudi Arabia and suspended consular operations at the embassy due to security concerns.

First Bank Issues Negative S&P 500 Earnings Outlook

Deutsche Bank became the first recognized sell-side bank to issue an earnings warning on the S&P 500, forecasting that earnings per share would contract in 2015. This comes as most of the components of the Dow Jones are negative year-to-date as consumer staples and technology companies lead the drop in equity prices. This comes just as February recorded the largest month of corporate buybacks in S&P 500 history. What this also implies is that companies are borrowing funds to finance buybacks instead of organic revenue growth which could be a bigger problem down the road. The stronger dollar is also impacting earnings of multinationals, specifically heavy machinery companies like Caterpillar which serve as strong barometers of global risk sentiment. Any worsening in global trade could see further downside in already stretched equity valuations.

EURUSD Fights to Maintain Long-Term Support

In incessant friction between Germany and Greece is seeing both nations increasingly at odds over Greece’s future in the Eurozone. The latest comments from Greece suggest that the country would like to default and stay within the Euro Area while the Germans are proposing a complete exit from the Euro Area. The German Government has reiterated its opposition on several occasions to bailing out Greece further with taxpayer dollars as they seek to banish what they see as Euro noncompliance. Each sides’ demands have become increasingly difficult to satisfy, leading to a confidence drop in the Euro. Coupled with recent revelations that the ECB’s quantitative easing program is already seriously distorting bond markets means that the grand plan to reverse Europe’s fortunes might be in trouble. EURUSD is struggling to stay above 1.0500 after hitting multi-year lows on Friday.

USDCAD Horizontal Range Technical Setup

Amid weakened momentum higher and profit-taking, USDCAD looks to have found solid resistance on the upside at 1.2798. With few announcements of importance today, any continued pullback in the US dollar make the resistance level an attractive place to consider short positions with the target on the downside of support at 1.2380. Industrial production figures and manufacturing numbers that print below expectations are likely to cause losses in the pair with any optimistic figures having potential to cause a breakout to the upside. USDCAD is more likely to be reactive to tomorrow’s US housing data and Canada’s manufacturing sales numbers.