Daily Commentary | 10/07/2019
BoC Interest rate decision
Bank of Canada is to release its interest rate decision today (14:00, GMT) and is widely expected to remain on hold at +1.75%. Currently CAD OIS imply a probability for the bank to remain on hold of 93.90%. Should the bank maintain the current level of interest rates, we could see market attention turning to the accompanying statement and the following press conference of BoC governor Poloz (15:15, GMT). The recent acceleration of the inflation rate could be pushing for a more hawkish stance for the BoC, as the CPI rate (+2.4% yoy) has exceeded the bank’s median target (+2.00% yoy). On the flip side, the recent slump of the employment market and the slowdown of the GDP growth rate could be advising caution. Analysts point out that the bank may be feeling the pressure from the Fed’s dovish turn, as the Loonie appreciated against the USD in 2019. We expect the document to have a balanced tone, also including some comments about the global trade uncertainty and should there be any dovish hints we could see the CAD weakening. USD/CAD remained rather stable yesterday, below the 1.3145 (R1) resistance line. The pair maintained a sideways movement in the past two week’s indicating the current trend, yet we could see it being affected by BoC’s interest rate decision later today, as well as the release of the Fed’s minutes. Should the pair’s long positions be favored by the market, we could see it breaking above the 1.3145 (R1) resistance line and aim for the 1.3230 (R2) resistance barrier. Should it come under the selling interest of the market, we could see it breaking the 1.3060 (S1) support line and aim for lower grounds.
Pound under Brexit pressure
Cable continued its drop yesterday, signalling further weakness of the pound, probably caused by Brexit pressure. In a rare warning for the country’s next PM, the UK parliament yesterday, passed a measure aimed at stopping a no deal Brexit. According to media, a bit later Boris Johnson and Jeremy Hunt clashed over the same issue, with Boris Johnson not ruling out a possible closing of the UK Parliament in order to deliver a no deal Brexit. On the financial side, UK’s PMI’s painted a gloomy picture of the UK economy last week, yet today’s releases, especially the GDP rates for May, could improve it somewhat. It should be noted that in a Bloomberg survey economists participating, indicated that the UK economy, may experience a contraction for Q2. We expect the pound to remain under pressure from the deep political crisis, yet there may be some relieve should today’s rates accelerate. Cable continued to drop yesterday, breaking the 1.2475 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair, as the downward trendline incepted since the 28th of June remains intact. Should the bears maintain control of the pair’s direction, we could see it aiming if not breaking the 1.2375 (S1) support line. Should the bulls take over, we could see cable breaking the 1.2475 (R1) resistance line, the prementioned downward trendline and aim for the 1.2560 (R2) resistance hurdle.
Other economic highlights, today and early tomorrow
Today during the European session, we get form Norway the CPI rates for June and from the UK GDP growth rates as well as the manufacturing output growth rate, all for May. In the American session, we get from the US the EIA weekly crude oil inventories figure. In tomorrow’s Asian session, Australia’s housing finance growth rate for May is due out. Please note that the markets may be focusing on the testimony of Fed’s Chair Jerome Powell before the US Congress and the release of the Fed’s meeting minutes, for any further clues regarding the Fed’s intentions. Other speakers scheduled for today and early tomorrow, include BoE’s Tenreyro, St. Louis Fed President Bullard and RBA’s assistant Governor DeBelle.
• Support: 1.2375 (S1), 1.2280 (S2), 1.2150 (S3)
• Resistance: 1.2475 (R1), 1.2560 (R2), 1.2655 (R3)
• Support: 1.3060 (S1), 1.2965 (S2), 1.2880 (S3)
• Resistance: 1.3145 (R1), 1.3230 (R2), 1.3310 (R3)