BoC is to release its interest rate decision tomorrow and is widely expected to remain on hold at +1.75%. It should be noted that at some point yesterday the market had fully priced in such a scenario, as CAD OIS implied a probability of 100%. Should the bank remain on hold as expected we could see trader’s attention turning to the accompanying statement for more clues. Recent financial data seem to be sending mixed signals as on the one hand the CPI rate remained near the bank’s median target of +2.00% yoy, while on the other hand the GDP growth rate for Q3 retreated considerably. Also, interestingly enough in a recent speech, BoC governor Poloz had mentioned that despite the surrounding risks of global trade, BoC’s monetary conditions are “about right”. Hence, we maintain as a main scenario, the bank remaining on hold and the bank maintaining a neutral tone in its accompanying statement, which could provide some support for the CAD. On the other hand, should the bank choose to adopt a more dovish tone we could see the markets taken by surprise and the Looney weakening considerably. USD/CAD maintained a sideways motion yesterday between the 1.3335 (R1) resistance line and the 1.3230 (S2) support line. The pair could continue to move in a range bound movement, however BoC’s interest rate decision could provide volatility for the pair and change the direction either way. Should the pair’s long positions be favoured by the market, we could see it breaking the 1.3335 (R1) resistance line and aim for the 1.3430 (R2) resistance level. Should the pair come under the selling interest of the market, we could see it breaking the 1.3230 (S1) in search of lower grounds.
…while trade tensions deepen…
Trade tensions between the US and other countries, escalated even further yesterday, raising further uncertainty in the markets. The US President stated that he had “no deadline” for an agreement with China, which strengthened the market’s worries that trade frictions could have an adverse effect of global growth for a longer period than anticipated. To make things even more complicated, the US House of Representatives passed another bipartisan bill about human rights in China, prompting China to vow for countermeasures. On other headlines, France’s government stated that the EU would retaliate, should the US follow through with tariffs on French products. It should be mentioned that the US government also considers similar probes for Austria, Italy and Turkey. Market sentiment is very cautious, and we could see safe havens strengthen even more should there be further negative headlines. USD/JPY dropped for a second consecutive day yesterday, breaking the 109.00 (R1) support line now turned to resistance. We tend to maintain a bearish outlook for the pair as long as the pair remains under the spell of the downward trendline incepted since the 2nd of December. However, it seems that he USD/JPY is about to test the prementioned trendline should the Asian morning’s stabilization continue. Should the bears continue to dictate the pair’s direction, we could see it breaking the 108.35 (S1) support line aiming for the 107.75 (S2) support line. Should the bulls take over, we could see the pair breaking the 109.00 (R1) resistance line and aim for the 109.70 (R2) resistance level.
Other economic highlights today and early tomorrow
Today, during the European session we get Eurozone’s and UK’s final PMIs for November. In the American session, we get from the US the ADP payrolls figure for November, the ISM non-manufacturing PMI for November and the EIA crude oil inventories figure. In tomorrow’s Asian session, we get Australia’s retail sales growth rate for October as well as the trade data for the same month.
USD/JPY 4 Hour
Support: 108.35 (S1), 107.75 (S2), 107.10 (S3)
Resistance: 109.00 (R1), 109.70 (R2), 110.50 (R3)
USD/CAD 4 Hour
Support: 1.3230 (S1), 1.3125 (S2), 1.3025 (S3)
Resistance: 1.3335 (R1), 1.3430 (R2), 1.3545 (R3)
