Daily Market Analysis: 19 January 2017
by Christala Parmaxi, CFTe
The Bank of Canada had its monetary policy meeting and the rate decision yesterday, where they kept the policy unchanged and the interest rate steady at 0.5%. However, the press conference that followed the decision by the Governor Poloz sent the Canadian Dollar lower since he held a dovish tone repeating his words from the previous policy meeting, saying that a rate cut is still on the table. The Governor expressed the Central Banks worries about U.S. protectionism that would affect Canada’s economy and the inflation goal. Despite those dovish comments, the Bank’s view is that the economic growth will be supported by government spending, net exports and higher demand.
The Loonie traded lower yesterday against all of its major counterparties except the Japanese Yen which was affected by US Dollar’s yesterday strength. Since the US Dollar rose yesterday and the Loonie fell, the combination boosted the USDCAD to rise the most and achieve a weekly high level.
Unlike the Loonie, the US Dollar closed Wednesday higher against all of its major counterparties with the big losers of the day being the Canadian Dollar and the Japanese Yen. The USD bullish movement was boosted firstly by the CPI release which was better than expectations and then by the hawkish comments of the speech of the Chairwoman Janet Yellen confirming that the Fed is close to reach its inflation and employment targets and that December’s rate hike helped the economy to recover. The Fed Chair avoided commenting on the exact time of the next rate hike supporting that it will depend on the economy over the coming month. The US Dollar performance tomorrow will be significantly based on Trump’s inauguration and the speech he is going to deliver. If Mr. Trump gives any new information about how he is going to “make America great again” then it is possible for the greenback to take another upside round while in the case he fails to support his promises again we do not exclude the greenback’s downside correction scenario.
The spotlight of the day is on the European Central Bank’s monetary policy meeting. Despite that the Bank is expected to hold its policy unchanged, the interest rate steady at 0% and the deposit facility rate at -0.4%, investors are interested to hear if ECB is ready to consider tapering of its QE program. The President Mario Draghi dismissed the tapering idea on the previous policy meeting; however the past month was overall positive for the EU economy since the depreciation of Euro boosted the inflation and the EU growth higher. Any comments or thoughts for the QE tapering or at least reduction of a part of it or its timing will be considered positive for the European currency. Since Mario Draghi is generally conservative on the tapering idea, we would expect him to focus on the purchasing program and the view of the bank on the overall economic outlook and Bank’s inflation targets instead.
Today from the US, we are looking for the Building Permits of December which are expected higher than the latter release and for the Philadelphia Fed Manufacturing Index which is expected lower. The data is about to be released at 13:30 GMT, the same time that the ECB Press Conference is be held while the ECB rates decision will be announced at 12:45 GMT.
Despite the correction of the pair yesterday, it did not create a new low yet based on the current short term uptrend and thus we consider the pair to still be bullish unless a change in direction happens. At the moment of writing, the pair is trading between SMA50 and SMA100 since it managed to penetrate the latter during the European morning. MACD is slopping upwards but it is still below its equilibrium level while RSI is moving to the upside within its bullish territories. Moreover, ADX indicates positive directional movement but of course the pair’s direction will be influenced by today’s ECB press conference. The valid support levels are near the cross of SMA100 and SMA20 (Bollinger’s middle band) at the price level of 1.065 and near the cross of SMA200 and Bollinger’s lower band at the psychological level of 1.06. On the other side, the valid resistance levels are near 1.068 and 1.072.
The Caple lost some of its strength yesterday due to greenback’s weakness but today it attempts to regain it. It is currently trying to penetrate SMA50 to the upside at the time of writing while the triple moving average suggests buy signals with its crosses between SMA100 and SMA50 and SMA50 and SMA200. MACD and RSI are both slopping upwards while ADX indicated indecision. ADX indecision happens many times during the correction points of the major trend, which may be the case now. The valid support levels are near 1.225 and 1.22 while the major resistances are near 1.235 and 1.242.
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
June 8, 2017
June 6, 2017