CAD/JPY – Potential Hike In Oil Production Quota By OPEC+

#OPINIONLEADER# #Signal#

 JUN 30, 2021

• Upcoming meeting sees OPEC+ easing production cuts
• Potential reversal of CAD/JPY

Chart 1: CAD/JPY D1 chart

The OPEC+ will be meeting tomorrow to decide on their oil production quota for August. It is likely that the group will be increasing its quota above the current 2.1 million barrels-per-day production level. This is motivated by three reasons. Firstly, the latest OPEC forecast for oil demand states that maintaining oil output at the current levels will lead to a supply deficit of 1.5 million bpd in August. Secondly, with the demand of oil recovering, increasing oil production beyond the 2.1 billion barrels-per-day quota for August will help bring in more revenues for the members. Thirdly, as the recent spike in inflation is starting to become a major concern, the OPEC+ is being pressured by many countries to hike production in order to bring oil prices. (Refer to today’s Currency Call for an in-depth analysis of tomorrow’s OPEC+ meeting.)

Last month, CAD/JPY traded to the 3.5-year high level of 91 after the Bank of Canada announced a tapering of its quantitative easing, making it the first central bank this year to take action. Since then, the 91 handle has become a strong resistance level such that any attempt to break above it is futile. With the likelihood that the OPEC+ will be hiking its oil production quota above the current level for August, oil prices may take a hit, thus impacting the Canadian dollar negatively. As a result, a reversal in CAD/JPY may take place.

Trade Setup for CAD/JPY (D1)

Sell Stop order at 87.800

Upcoming major news that may impact price movement of CAD/JPY

30 June – Canadian GDP m/m data release at 2030 (GMT+8)

01 July – OPEC+ meetings

02 July – Bank of England Governor Bailey speaking at 0300 (GMT+8)

07 July – Ivey PMI data release at 2200 (GMT+8)

09 July – Canadian jobs report release at 2030 (GMT+8)

14 July – Bank of Canada monetary policy announcement at 2200 (GMT+8)

16 July – Bank of Japan monetary policy announcement