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Brent rises after multi-country coordinated oil reserve release

Looks like we are going to have a higher dollar, higher energy prices, and higher inflation and maybe that leads to a higher rate of tapering by the Fed? Maybe it means things get ramped up and the rate hike cycle begins sooner rather than later. The answers lie with OPEC+ which will have time to adjust their thoughts and work out whether they are going to lose market share. If they have nothing to fear, they will keep the supplies relatively tight.

Market Wrap

If the markets followed the script every time, we would all be millionaires.

Those of you who have been reading for a while will have noticed that I have mentioned higher energy prices and inflationary pressures frequently. Headline CPI and PCE inflation readings always come out with higher inflation with energy and food as the main components. In order to survive as a species, we require a few things: energy is one of them, and food is another. Today's coordinated release of oil from emergency reserves from the USA, China, UK, India, Japan, and Rep. Korea was supposed to alleviate the price increases that are crippling the consumers in the USA and the manufacturers around the world.

So, it is a bit of a kick in the teeth to see the price of Brent reversing all of yesterday’s losses.

It may have been due to the irony that the US President's own press release also stated that he hoped to bring down costs for American citizens and continue our strong economic recovery. Meanwhile, the Administration remains committed to the President's ambitious clean energy goals.

It just proves that you can't have it both ways, and you can't please everyone at the same time. The developed countries of the world have an advantage over everyone else due to their relatively cheap energy. However, if we don't switch to a sustainable source of energy that emits the same amount of power, it will ruin the planet.

The markets believe the leaders of the world haven't done enough to address the lack of supply, and they doubt that they can do much more. It really is up to OPEC+ to adjust their output.

The US dollar is now paused around the $96.50 level. We could be here for some time while we wait on the US debt ceiling to be resolved. US Treasury Sec. Yellen warned December 3rd would be the cut-off for when the temporary measures would run out of money, but some are saying it could be teased out for another week or so. It wasn’t so long ago that the DXY was trapped under the $94.50 level, and we saw what happened to that once the market had decided to really go for it.

According to preliminary estimates, the IHS Markit US Manufacturing PMI increased to 59.1 in November of 2021 from a 10-month low of 58.4 in October, beating market expectations of 59. A rise in new orders led to increased production, but delays in raw materials and labor shortages hampered production, while price pressures persisted.

The USDJPY breakout to the upside is still working, and after the breakout, and retest, we are now in the continuation phase, so I am expecting some higher prices to come soon. The rising energy prices will help as will the rising US Treasury yields.

October on the USDCAD saw price break market structure and then go down to test the June 2021 lows. As the US dollar appreciated and the energy prices stalled, the USDCAD had a good run-up to the 1.2730 level. Now that we see the price of oil going higher, regardless of whatever plans the world leaders are trying to hatch, there is a real possibility that the Canadian dollar catches a bid and this USDCAD comes down. The risk would be small too as my stop loss would go above the 1.27750 swings high level.


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