Daily Commentary | 09/01/2019
Bank of Canada interest rate decision
The BoC is expected to remain on hold today at +1.75% (15:00, GMT) and currently CAD OIS imply a probability of 88.30% for the bank to do so. Should the bank remain on hold as forecasted, we could see markets turning their attention to the accompanying statement and the following press conference (16:15, GMT) . With inflation rates (both headline and core) being below the bank’s median target and oil prices being in the last few weeks, arguments for a more dovish tone on behalf of the bank which could be pushing future rate hikes into the future are strengthening. On the other hand, as oil prices may start rising and the bank may want to maintain its options open about its future rate hike path, the bank may adopt a more neutral tone or even have some hawkish elements present. Also it should be noted that the monetary policy statement to be released today, may contain alterations to the CPI and GDP forecasts which could also affect the Loonie’s direction. USD/CAD dropped even lower yesterday clearly breaking the 1.3290 (R1) support line (now turned to resistance). We see the case for the pair to continue trading in a bearish market today, however it may prove sensitive to the releases of the FOMC meeting minutes and especially the BoC interest rate decision. It should be noted that the RSI indicator in the 4 hour chart remains below the reading of 30, implying a possibly overcrowded short position. Should the bears continue to dictate the pair’s direction we could see the pair breaking the 1.3215 (S1) support line and aim for the 1.3145(S2) support barrier. Should on the other hand the bulls take over we could see the pair breaking the 1.3290 (R1) resistance line.
US-Sino trade negotiations to be extended
Media report that the ongoing US-Sino negotiations in Beijing, are to be extended for an unscheduled third day. It should be noted that the extension of the negotiations along with a number of comments made, enhanced optimism for a possible deal between the two largest economies in the world. Media also report that progress made seems to concentrate around issues such as purchases of China from the US for Farm and energy products, as well as increased US access to Chinese markets. Chinese media stated that China is keen to solve the trade dispute with the US, however is not willing to make any “unreasonable concessions”. Analysts point out that growing optimism about the end result of the negotiations could support commodity currencies such as the AUD, as well as WTI prices to a lesser extent. AUD/USD maintained a sideways movement yesterday and rose slightly during today’s Asian session, breaking just above the 0.7150 (S1) resistance line (now turned to support). We may see the pair rising even further, especially should there be good news from the ongoing US-Sino trade negotiations. Should the pair find fresh buying orders along its path, we could see it aiming or even breaking the 0.7230 (R1) resistance line. Should the pair come under the selling interest of the market, we could see it breaking the 0.7150 (S1) support line and aiming or even breaking the 0.7065 (S2) support level.
In today’s other economic highlights:
In today’s European session, we get Germany’s trade balance for November, Switzerland’s CPI rate for December, Eurozone’s unemployment rate for November and in the American session we get Canada’s number of housing starts (Annualised) for December and later on the Fed is to release FOMC meeting minutes. Please note that Atlanta Fed President Bostic, Chicago Fed President Evans, BoE Governor Mark Carney and Boston Fed President Rosengren will be speaking today.
• Support: 1.3215 (S1), 1.3145 (S2), 1.3060 (S3)
•Resistance: 1.3290 (R1), 1.3350 (R2), 1.3425 (R3)
• Support: 0.7150 (S1), 0.7065 (S2), 0.6930 (S3)
•Resistance: 0.7230 (R1), 0.7330 (R2), 0.7420 (R3)