Sunday, December 4, 2011

CAD vs OIL - correlation broke down

There is almost 100% correlation between all risk assets in this market. But one of them has broken down. Canadian dollar and Oil have not been moving in lockstep, like they did since March of 2009. Near perfect correlation broke down at the end of October.

I am probably not smart enough to figure out exactly what is going on. But my main reason would be the fact that Canadian economy has been cooling a bit. Economic reports have been coming in weaker than expected. Carney, Flaherty, and even Harper have all been talking down CAD, by making remarks about how European debt crisis is weighing on Canadian economy.

It is not clear if this broken correlation continues much longer. Below are the charts which show in detail what is going on. Oil has broken above September highs and has taken out $100. CAD has been unable to trade above Sep highs and stays in the downtrend, with parity becoming a resistance. There is a symmetrical triangle on CAD which will break out soon (like in 2010). Keep your eyes on this development, as CAD has also been closely correlated with SPX.

(click on charts to enlarge)




Update on Dec 7 @ 2:25 am
It is clear that CAD wants to catch up with oil.
BOC upgraded economic view on Tue.
Watch parity as the first target.

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