Canada’s central bank raised its benchmark target for the overnight rate by 25 basis points to 0.75 percent, as expected by many analysts, saying data had bolstered its confidence about the economic outlook and recent softness in inflation is judged to be temporary.
The Bank of Canada issued the following statement:
“The Bank of Canada is raising its target for the overnight rate to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. Recent data have bolstered the Bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy. The Bank acknowledges recent softness in inflation but judges this to be temporary. Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time.
The global economy continues to strengthen and growth is broadening across countries and regions. The US economy was tepid in the first quarter of 2017 but is now growing at a solid pace, underpinned by a robust labour market and stronger investment. Above-potential growth is becoming more widespread in the euro area. However, elevated geopolitical uncertainty still clouds the global outlook, particularly for trade and investment. Meanwhile, world oil prices have softened as markets work toward a new supply/demand balance.
Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed. The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential. Growth is broadening across industries and regions and therefore becoming more sustainable. As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding. Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon. At the same time, exports should make an increasing contribution to GDP growth. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey.
The Bank estimates real GDP growth will moderate further over the projection horizon, from 2.8 per cent in 2017 to 2.0 per cent in 2018 and 1.6 per cent in 2019. The output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).
CPI inflation has eased in recent months and the Bank’s three measures of core inflation all remain below 2 per cent. The factors behind soft inflation appear to be mostly temporary, including heightened food price competition, electricity rebates in Ontario, and changes in automobile pricing. As the effects of these relative price movements fade and excess capacity is absorbed, the Bank expects inflation to return to close to 2 per cent by the middle of 2018. The Bank will continue to analyze short-term inflation fluctuations to determine the extent to which it remains appropriate to look through them.
Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy. Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities.”
Preparing for the publication of macroeconomic statistics
The New Zealand dollar weakened on the background of continuing earthquakes in the Pacific Ocean, near the shores of New Zealand. Macroeconomic data may be additional negative factor. Will the NZDUSD continue to decline?
Retail sales with the usage of credit cards in New Zealand did not changed in June 2017, compared to May. Most market participants expected them to grow by 0.8% after the decrease by 0.4% in May compared with April. On July 12-13, 2017 from the evening to early in the morning, home sales data, food price index for June and the consumer confidence index for July will be published in New Zealand. On July 14, the New Zealand Manufacturing PMI and on July 18 the inflation data will be released. Preliminary forecasts of macroeconomic statistics support the preservation of the current rate of the Reserve Bank of New Zealand at 1.75% and may have a negative impact on the local currency exchange rate.
On the daily timeframe, NZDUSD: D1 falls from the rising price channel. Downward correction is possible in case of the publication of negative macroeconomic statistics in New Zealand and the strengthening of the US dollar.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have widened, which means lower volatility. They are tilted downwards.
- The RSI is below 50. It has formed a negative divergence.
- The MACD gives a bearish signal.
The bearish momentum may develop in case NZDUSD drops below the last low. It was fixed on the day of the earthquake at 0.72. This level may serve as the entry point. The initial stop loss may be placed above the two last fractal highs, the Parabolic signal and the 5-month high at 0.735. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 0.735 without reaching the order at 0.72 we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Market Analysis provided by IFCMarkets
USD/CAD – hike or disappointment?
We have a busy day as the Bank of Canada will publish the Overnight Rate, as you already know, the economists have forecasted an increase from 0.50% to 0.75%. A rate hike will help the Loonie to stay higher and to try to increase versus its rivals.
We’ll see what will happen because the rate hike could be priced in and the USD/CAD could ignore this big event. Price is trading in the green and is fighting hard to 1.2943 yesterday’s high, has climbed above a broken support, but unfortunately is still under massive selling pressure.
Maybe will be better to stay away this pair later because we may have a huge volatility and you could suffer a heavy loss. I want to say that a disappointment coming from the BOC will send the USD/CAD much higher on the short term.
Is struggling to increase after the massive sell-off, has found support right above the median line (ML) of the major descending pitchfork, signalling that is too oversold to drop further. Actually we have a false breakdown below the confluence area formed by the median line (ml) of the minor descending pitchfork with the second warning line (wl2) of the former minor ascending pitchfork.
Technically, we should have another leg higher on the short term after the failure to reach the ML and after the false breakdown, but we’ll see how will react after the BOC. The next upside target will be at the 23.6% retracement level, 1.3047 static resistance and at the upper median line (uml) of the minor descending pitchfork.
USD/JPY rejected by resistance area
Looks like that the minor upside momentum is completed and now we could have a minor decrease on the short term. Has decreased today also because the Nikkei stock index has slipped lower today to test and retest the 20058 static support (resistance turned into support).
The USD/JPY continues to move sideways after the failure to stabilize above the 114.00 psychological level, also dropped below the 113.50 level. Will increase further only if the JP225 index will have enough energy to stay above the 20058 and to climb towards the 20320 previous high.
USD/JPY founded strong resistance right above the short term 23.6% retracement level and now plunged much below the long term 23.6% retracement level. Is approaching the upside line of the former symmetrical triangle, where he could find support again, could only retest the chart pattern before will increase again. A larger increase will be confirmed only after a valid breakout above the WL3.
By Olimpiu Tuns, MultiBank Exchange Group
EUR/USD – breakout or fake out?
The European currency increased sharply versus the USD in the yesterday’s US session as there are some rumors that the Federal Reserve will delay another hike. Price maintains a bullish perspective on the short term, has touched new highs, but remains to see what will happen in the upcoming period because has reached a major static resistance. Only a valid breakout above this level will confirm a further increase.
The greenback was demolished by the USDX’s drop, the index is trading much below the 96.00 psychological level, but stay above the 95.45 previous low. An accumulation will signal and oversold and that we may have a reversal on the short term.
Price climbed above the median line (ML) of the ascending pitchfork and most important above the 1.1466 major resistance level (May 2015), a valid breakout will attract more buyers, which will drive the rate towards fresh new highs. Right now is premature to say that we’ll have a further increase because we may still have a Rising Wedge pattern if will slip below the median line (ML) again.
You can see that we had another false breakout above the median line (ML) on July 29, that’s why we have to be patient and to wait for a fresh trading signal.
GBP/USD – drops like a rock
The Cable remains under selling pressure versus the greenback and is expected to reach new lows in the upcoming hours. We may have some volatility on this pair after the United Kingdom will publish the economic data, the Average Earnings Index may increase by 1.8% in May and could beat the 2.1% estimate. Moreover the Unemployment Rate is expected to remain steady at 4.6% in May, while the Claimant Count Change could increase to 10.5K , from 7.3K.
Price is attracted by the 1.2798 static support and ignores the USDX’s drop, could find support at the mentioned obstacle and at the first warning line (wl1) of the ascending pitchfork. I want to remind you that a valid breakdown through the confluence area formed between these two support levels will accelerate the sell-off.
However, a bounce back will send the rate towards the upper median line (UML) of the major descending pitchfork.
By Olimpiu Tuns, Market Analyst at MultiBank Exchange Group
Article by ForexTime
The Greenback was neatly packaged and delivered to bears during Tuesday’s trading session, following reports of emails that show President Donald Trump’s eldest son met with a Kremlin-linked Russian lawyer prior to the US general elections last November. This fresh revelation has added to the political uncertainty in Washington and may delay the proposed tax reforms & infrastructure spending plans. With the Dollar Index under intense selling pressure on the daily charts, Dollar bullish investors are likely to search for fresh inspiration to support prices from Janet Yellen’s Congress testimony later today.
Yellen is scheduled to testify on the economy before the House Financial Services Committee this afternoon; her remarks will be closely scrutinized for clues on when the Federal Reserve plans to raise rates. While markets expect Yellen to reiterate her hawkish remarks and upbeat outlook on the US economy, this may not be enough to support the US Dollar. Investors not only need fresh insight on when the Federal Reserve plans to raise rates, but also require greater clarity on the timings and magnitude of the balance sheet reduction. It will also be very interesting to hear Yellen’s thoughts on falling inflation rates and tepid wage growth, and how these may impact the Fed’s path to monetary policy normalization.
A situation where nothing new is brought to the table may punish the vulnerable Greenback further. From a technical standpoint, the Dollar Index is pressured on the daily charts. A breakdown below 95.50 may open a direct path towards 95.00.
Sterling gifted a lifeline
Sterling bulls were offered a lifeline on Wednesday following a mixed UK employment report that slightly eased some Brexit-related concerns. The UK employment market continued to display resilience against Brexit, with the unemployment rate falling to 4.5% for the three months to May, marking a landmark 42-year low. Despite the encouraging jobs picture, wage growth disappointed, signalling another fall in total earnings. With inflation outpacing wage growth, British consumers are seeing their spending power diminish and as such, may fuel concerns over the longevity of the UK’s consumer-driven economic growth. This simply takes us back to the question – will the Bank of England be willing to raise interest rates during such fragile economic conditions? Markets may pay very close attention to the UK’s macro fundamentals, political developments in Westminster and Brexit talks for further clues on what actions the BoE may take.
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