CAD lifts on rate rise prospects

31 May, 2018

The Canadian economy has been the big talking point of this afternoon with the Bank of Canada (BoC) keeping rates flat at 1.25%. The major change though was the removal of dovish wording from the monetary policy statement, and now starting to align that wording with their American counterparts the Federal Reserve. The odds now of a hike at the next meeting in July have increased drastically as a result and this should not come as to much of a surprise, given that inflation has been running at 2% recently which gives the bank the mandate to look to move rates higher from the artificial lows they've been sitting at for some time.  The only thing that could derail things is upcoming GDP figures which are expected to be slightly weaker, though analysts may change this in the wake of the Bank of Canada's confidence, and NAFTA - which continues to drag on with the US and Mexico. However Canada has said it won't cut a deal which negatively impacts Canada's main industries.

For the USDCAD some serious movement has taken place and the bears were quick to capitalise on the USD sell off today and the CAD's strength. So far the USDCAD has moved below the 1.2881 level on the charts and if it can remain below this support level we could see some further selling pressure and potentially a move to 1.2693 on the next leg. At the same time if we close above this key support level then potentially it's a sign that the bulls think the USD still has plenty in the tank to run with and we could see another leg back up to 1.3041. All in all, it's looking quite bearish, and we could get another few days on the back of the BoC announcement.

The other major talk of the town today was the complete U-turn in Italian politics. With the President and PM coming together to allow more time for the government to set up its coalition, and also the 5 star movement asking that Savona not be nominated for the finance/eco minister role for Italy. This of course still has its challenges, but at the same time it removes a major euro sceptic from a key position in the goverement and euro bulls were quick to rally as a result. There are a number of challenges ahead, but at the same time it could in theory lead to a more stabilised, yet progressive Italian government, that won't be so aggressive towards the euro-zone.

The EURUSD as a result has rallied strongly eclipsing all of yesterday's losses, but has failed to capitalise on the follow days candle. This to me is a strong sign that perhaps markets are positive but being cautious here. Resistance at 1.1719 will be interesting, with markets likely to look for some sort of political relief before extending further to the next level at 1.1824. At the same time if the bears are serious in the market, they may look to jump on the news and push the Euro down to 1.1482 in the long run.


Source   Presented by FXTM
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