Oil Shrugs Off OPEC, USD Hardens Fall

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Thursday was all about deal-making with OPEC, Brexit and US stimulus all in play. The market continues to lean towards a Brexit deal but hopes are now pinned on weekend talks, which will make for an interesting Friday trade. US stimulus talks continue to move in a positive direction but we're not at the final stages yet.

It was OPEC+ that made its move on Thursday and it wasn't the 3 month extension the market had expected. Instead, OPEC opted for a plan to raise production 500k bpd each month starting in January. We would have expected some crude selling on that but after a small blip, WTI crude found a base and the rallied back above $45.50. Brent also finished more than 1% higher.

The adage that applies here is: When a market can't fall on bad news, it can't fall at all. Holding well-above the recent range in crude through the OPEC news is a good sign for the bulls. OPEC still has 7.2mbpd of spare capacity so that will certainly keep oil from running higher but the surplus in inventories will slowly be run off in the months ahead and at some point in 2021, demand will be strong.

That was reflected in the Canadian dollar Thursday as USD/CAD fell to the lowest since 2018. The break of 1.30 clears out a key support level and highlights the case for a further decline on heavy Canadian fiscal spending and its commodity riches.

The EUR/USD breakout resumed on Thursday as it climbed above 1.21 and it was joined by the Australian dollar in a climb above the September high of 0.7411 to the best levels since 2018.

The dollar is behaving like a classic bear market, as intermittent retracements are met with renewed selling. The trigger on Wednesday was more positive talk on US stimulus. It's tough to know if differences can be bridged but Democratic leaders said they could work with the bipartisan group's proposal and McConnell said Democrats were acting in good faith.

In the shorter-term though, the trade will evolve around Friday's US and Canadian jobs reports. Non-farm payrolls estimates have come down and sit at 478K. Homebase hiring numbers point to the risk of a downside surprise but markets have been able to ignore any bad economic data for months. On the flipside, a positive surprise may be welcomed, leaving a positive skew.