Traders’ focus on Wednesday will be the publication of a block of important macro statistics on the US (between 13:15 and 15:00 (GMT), as well as a meeting of the Bank of Canada on monetary policy issues.
Bank leaders signal that the country’s economy is in good shape, and monetary policy remains soft. For example, Bank of Canada Governor Stephen Poloz said last month that “current monetary policy remains appropriate in this situation.” In his view, it still “remains largely stimulating.”
According to data released last Friday, Canadian company investment grew by 2.6% in the third quarter, the strongest increase since the end of 2017. Household spending increased by 0.4% after rising by 0.1% in the previous quarter. Property investment in Canada grew by 3.2% in the third quarter, the fastest growth rate in more than 7 years, helped by the construction of new homes. According to economic advisers of the central bank, easing of monetary policy can provoke credit growth and lead to overheating of real estate markets in the country, especially in large cities.
At the same time, despite the optimism of the governors of the Bank of Canada, many economists believe that the central bank should consider lowering interest rates to prevent the negative economic consequences of the current trade conflicts.
As reported last Friday in the Statistics Agency of Canada, the COUNTRY’s GDP, the most broad indicator of goods and services produced in the economy, grew by 1.3% year-on-year in the third quarter (the forecast was 1.4%).
Commodity stocks contributed the most negatively to economic growth, down to 2.66 billion Canadian dollars from 12.47 billion Canadian dollars in the previous quarter. Trade was another negative factor. Canada’s exports fell 0.4 percent in the third quarter, while imports remained unchanged.
Economists expect the country’s economy to grow below 2% in 2019 and not exceed that level over the next two years. Canada faces many challenges, including the negative impact of lower commodity prices and the uncertain prospects for world trade.
Investors expected that the U.S. and China will sign the “first phase” of the agreement as early as this month. However, on Tuesday, U.S. President Donald Trump signaled that the trade war with China will continue next year. Trump said he had “no deadline” for a trade deal with China and “likes the idea of waiting until the election.”
Reducing the likelihood of an early deal has increased demand for assets deemed safer at times of economic instability, including bonds and .
At the same time, commodity prices and commodity prices, in particular the Canadian dollar, may once again come under pressure. The U.S. dollar will also receive support from the ongoing trade standoff between the U.S. and China. Consequently, the pair tends to grow rather than decline.
The prevailing view in the financial market is that the central bank of Canada will leave the key interest rate unchanged at 1.75% after Wednesday’s meeting.
If the Bank of Canada today follows signals aimed at easing monetary policy in the near term, the Canadian dollar may fall sharply. The decision on the rate will be published at 15:00, and at 16:15 (GMT) a press conference will begin, during which the head of the Bank of Canada Stephen Poloz will explain the position of the bank and assess the current economic situation in the country. If the tone of Stephen Poloz’s speech will be tough on the monetary policy of the Bank of Canada, the Canadian dollar will strengthen in the foreign exchange market. If Stephen Poloz is in favour of a soft monetary policy, the Canadian currency will decline. In any case, during the publication of the decision on rates and the speech of Stephen Poloz, high volatility is expected in trading on the Canadian dollar, including in the USD/CAD pair. Also at 15:00 (GMT) will be published the index of business activity (from ISM) in the U.S. services sector. Due to the imposition of two important events, volatility in the USD/CAD pair at this time can be particularly strong. Prediction: 54.5 in November (vs. 54.7 in October). These services sectors (as opposed to the manufacturing sector) have little impact on the country’s GDP. At the same time, a relative decline or data worse than forecast may have a short-term negative impact on the US dollar.
Since July, USD/CAD has been trading in a wide range between support levels of 1.3040 and resistance of 1.3380. The narrower range is between the levels 1.3138 and 1.3345 with the median line (balance line) passing through the 1.3328 mark and coinciding with the EMA200 lines on 4-hour and daily charts.
At the beginning of the European session, USD/CAD broke through the short-term support level of 1.3286 (EMA200 on a 1-hour chart) and develops a downward trend towards the key support level of 1.3238.
However, this does not mean that USD/CAD will actually fall to the level of 1.3238. If the Bank of Canada today (at 15:00 or 16:15 GMT) shows a propensity for soft monetary policy, then USD/CAD will resume growth.
Otherwise, the USD/CAD decline will continue with the immediate goal at the support level of 1.3238. In the event of further decline swell, USD/CAD targets will be support levels of 1.3200, 1.3138 (September lows), 1.3100, 1.3060, 1.3042.
Above the level of 1.3286, long positions will again be preferred.
Support levels: 1.3238, 1.3200, 1.3138, 1.3100, 1.3060, 1.3042, 1.3015
Resistance levels: 1.3286, 1.3300, 1.3325, 1.3345, 1.3380, 1.3400, 1.3452
Sell on the market. Stop-Loss 1.3305. Take-Profit 1.3238, 1.3200, 1.3138, 1.3100, 1.3060, 1.3042, 1.3015 Buy Stop 1.3305. Stop-Loss 1.3270. Take-Profit 1.3325, 1.3345, 1.3380, 1.3400, 1.3452