How Final Crude Sell-off Could Impact Currencies; What to Look for in Jan. ’19…
How Final Crude Sell-off Could Impact Currencies; What to Look for in Jan. ’19…
11/27/18 The Bridge: The Energy/Equity Connection
One of the key correlations to the Loonie is that of Crude Oil. The value of the CA$ swings closely with that of oil markets since it is, for all intents and purposes, a petro-currency. As Crude Oil was completing 1 – 2 year up cycles – culminating in late-Sept. 2018 and stemming from 6 – 12 month buy signals triggered in July & late-Sept. 2017 – the stage was set for a sharp sell-off that would likely weigh on the Canadian Dollar (and global equities)…
Once Crude had its sharpest decline out of the way, that would remove some of the negative pressure on the CA$ and eliminate one potential impediment for an ensuing rally into 1Q 2019. As stated on 8/22/18:
“That does usher in the possibility that a sell-off in Crude – when cycles turn more negative in Sept. ‘18 – could spur a final decline in the C$ and Ruble as they complete related down cycles.”
Back Into the Cru-Ca-Ble
There are a few key aspects of that analysis that need to be reviewed. First, there is the connection to the Russian Ruble that also moves in concert with oil prices much of the time. These three markets are not joined at the hip, and do not move in lockstep with one another, but do generally trend together.
[The charts in the left column were published in late-July 2015 along with the analysis reprinted on page 5. It provides a little context for this discussion and the general relationship between all three.]
Recently, the Ruble plunged in Sept. 2018 and set its lowest low in almost two years. It rebounded from there and neutralized its weekly downtrend multiple times but has failed to turn that pivotal trend up. That could spur a drop back to the Sept. ‘18 low. On a 6 – 12 month basis, the next decisive cycle in the Ruble is in January 2019.
Second is the relationship to Canadian equity markets. As described in Aug. 2018, the TSX Composite & TSX 60 had surged since Jan. 2016 – the same month in which the Canadian Dollar bottomed. Crude oil bottomed at the same time.
The TSX-60 Index surged ~45% since Jan. 2016 and is a prime example of a market moving in successive trading ranges. In this case, those trading ranges encompass about 100 basis points and involve borders at ~680, ~780, ~880 and then ~980 – at where its July/Aug. ’18 peaks took hold.
That latest advance unfolded after the TSX-60 tested and held 6 – 12 month support around 880, from July ‘17 – Feb. ‘18. All of this preceding analysis was described in Aug. and subsequently used to project a sharp drop back to ~880, after Canadian stocks reinforced their mid-July sell signals with a higher-degree (1 – 3 month) sell signal in late-August.
It was not, however, until Crude peaked and began its descent that the TSX 60 really plunged (in perfect sync with the 2-Year Cycle in US equities and analysis for 10 – 15% drops in Oct. 2018).
The TSX 60 plummeted right to 880 and has held that support since late-Oct. It has now created (at least) a triple bottom near 880 – with lows in July – Sept. ’17, Feb. ’18 & Oct. ’18 – increasing the likelihood that that support will ultimately be broken.
However, there is often a multi-month lag between the formation of a triple bottom (or top) and its ultimate demise. In the interim, Canadian equities could bounce into Dec… If it tests and holds (continues to close below) its descending weekly 21 Low MAC at that time, the TSX 60 would find itself in a precarious position, primed for a new decline.”
Crude Oil has plummeted since peaking in early-Oct. while fulfilling multi-month, multi-quarter & multi-year cycle highs in/around late-Sept. 2018… and also completing the latest phase of Middle East cycles that projected higher oil prices into late-Sept. 2018. The next phase of bullish oil cycles is projected for 1Q/2Q 2019 – leading into a potential (secondary) high in/around May 2019.
Along with this decline in oil markets, the Canadian Dollar & Russian Ruble could see new sell-offs into late-2018, leading into Jan. 2019 – when cycles will transition into a more bullish phase for all of them. Longer-term cycles argue for a bottom in Crude in Dec. ‘18/Jan. ’19, followed by a rally into ~May 2019.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.