Commento Quotidiano | 10/01/2019

BoC remains on hold, sounds more hawkish than markets expect

The BoC remained on hold at +1.75% as was expected, however may have sounded more hawkish than what markets had expected. In the accompanying statement the bank stated that the policy rate will need to rise over time and the pace will depend on the oil market, the Canadian housing market and global trade policy. It should be noted though that the bank issued new forecasts where the CPI remains unchanged while the GDP slows down somewhat for 2019. BoC governor Poloz in his opening statement at the following press conference, mentioned the alignment of a number of negative developments and at the end stated that the bank will remain data dependent in its future interest rate decisions. Overall, we may see Canadian financial releases creating more volatility over the coming period and the oil market to have an even greater effect on the CAD. USD/CAD dropped even lower yesterday at the release of the interest rate decision however corrected later on, remaining above the 1.3215 (S1) support line. Should the USD bearishness continue, we could see the pair dropping even lower today. Please note, that the pair’s RSI in the 4 hour chart remains below the reading of 30 and continues to signal a possibly overcrowded short position. If the bears dictate once again the pair’s direction, we could see the pair breaking the 1.3215 (S1) support line and aim for the 1.3145 (S2) support level. Should on the other hand the bulls take over, we could see the pair breaking the 1.3290 (R1) resistance line and aim for higher grounds.

USD weakness on dovish Fed comments and minutes

The USD weakened against a number of its peers yesterday as a string of dovish comments were made by Fed officials and the Fed minutes released included a rather dovish context. The context of the Fed’s meeting minutes revealed that a number of officials, felt that the Fed could be patient on further hikes, prompting analysts to note that a weaker dollar may be underway for the first semester of 2019. Also analysts pointed out that chances for the Fed not hiking rates in 2019 have increased after the release of the minutes and the comments made by Fed officials. Also the USD may have weakened, as investors reduced safe haven bets due to optimism about the US-Sino trade talks, however concrete evidence for progress made is still expected. Overall, we maintain a bearish outlook for the USD currently. EUR/USD rallied yesterday breaking consecutively all resistance lines and landing above the 1.1550 (S1) resistance hurdle (now turned to support). We maintain a bullish outlook for the pair should the USD bearishness linger on. Should the pair find fresh buying orders along its path, we could see it breaking the 1.1610 (R1) resistance line, while if the pair comes under the selling interest of the market, we could see it breaking the 1.1550 (S1) support line and aim for the 1.1500 (S2) support barrier. Please be advised that the RSI indicator in the 4 hour chart has clearly broken above the reading of 70, implying a possibly overcrowded long position. Also we would like to note that the release of ECB’s meeting minutes and Fed Chairman Powell’s speech today could prove to be the main points of interest for the pair. Especially should Powell’s speech in the economic club of Washington today, confirm the Fed’s dovishness once again, the USD could weaken even further. Such a scenario could be strengthened by the recent and almost “coordinated” comments made by Fed officials. On the other hand, we may see Powell trying to soften the blow on the markets in maintaining a more neutral stance in his speech.

In today’s other economic highlights:

In today’s European session, we get from Norway and the Czech Republic the inflation rates for December, and in the American session we get the US initial Jobless claims as well as Canada’s building permits growth rate for November. As for speakers, Richmond Fed President Barkins, St. Louis Fed President Bullard, Chicago Fed President Evans and Minneapolis Fed President Neel Kashkari speak.

USD/CAD H4

• Support: 1.3215 (S1), 1.3145 (S2), 1.3060 (S3)
•Resistance: 1.3290 (R1), 1.3350 (R2), 1.3425 (R3)

EUR/USD H4

• Support: 1.1550 (S1), 1.1500 (S2), 1.1465 (S3)
•Resistance: 1.1610 (R1), 1.1655 (R2), 1.1700 (R3)