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Oil Prices Drop After Forecast Revision

Written by A Forex View From Afar on Tuesday, April 14, 2009

Crude oil declined $1.50 today, or 2.90% as the International Energy Agency reduced its demand forecasts for the current year, once again.

The agency reports that global demand is likely to fall this year by 2.4 million barrels to 84 million barrels per day, citing the highest inventories over the last 16-years. Much of the downward projections came after first quarter GDP data was worse than initially forecasted. TheLFB-Forex.com Trade Team notes that the pace of oil output reduction is close to the pace seen in the 1980’s.

“The high level of inventories reflects the poor state of the global economy. Currently, crude oil is one of the main sources for energy. A low level of consumption shows that businesses are reducing production, thus add no new value to the economy,” TheLFB-Forex.com Trade Team said. “The forecast downgrade had a direct effect on the currency market, halting the Canadian dollar’s strength to some extent,” they added.

“In a day when the dollar was sold across the board, the Canadian dollar posted just some modest gains. The cad declined 40 pips today but was outperformed by every other major pair. However, oil’s decline did not provide a base for the dollar. Currently, the fundamentals of the Treasury market are supporting the dollar’s decline” TheLFB-Forex.com Trade Team commented.

It looks like the Canadian dollar will have to choose a direction to trade without a strong commodity backing it. For now, the cad is trading barely above the 1.22 support level.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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