We continue to see an escalation in the unrest in the Middle East. After Egypt and Tunisia managed to throw off their regimes other peoples throughout the region are trying to do the same.
The newest wave of protests focuses on Libya, Algeria, Bahrain and Yemen where unlike in Egypt we are seeing much stronger repression of these opposition voices. Stories over the weekend showed that Libya has taken a hard line stance and has been using deadly force against protesters - perhaps escalating the situation and creating conditions for more unrest and even armed clashes.
These four countries make up only about 5% of global oil production, but the concern is that other states in the Gulf can come under pressure from their populations - most notably Saudi Arabia. In such a case, then disruptions to the global oil market will cause even more unease in markets.
So far there has not been a major flight to safety, but if things escalate we could have a big move into safe haven assets like the JPY, CHF, and USD.
The contract for Brent Crude oil has already moved to a two-year high of just over $105 a barrel, and the Light Crude contract on the NYMEX was up 2.8% to start this week's trading, reaching $88.67.
These ongoing pressure will continue to put upward price pressure on black gold, which helps the Canadian Dollar as oil is one of its main exports.
We see that today as we look set to test our lows from last week near 0.9810 early on this week. A break there would open up downside risk for the pair, and we could see a move toward 0.9725 - a 2 year low in the pair.
For a technical analysis view of this pair, with target projections to the downside, please see our latest technical update for the pair: USD/CAD Hammering Away at Support Near 0.9850