Wednesday, September 28, 2016



Bank of Canada may loosen monetary policy

Canadian dollar slumped to a 6-month low. On USDCAD chart it looks like growth. Lower oil prices and bank of Canada’s statement supported such a trend. Will Canadian dollar continue weakening?
The victory of Hillary Clinton over Donald Trump in first round of TV debate as declared by CNN agency, could also have a negative effect at Canadian dollar. Market participants believe Democrats are more interested in Fed rate hike. In case their candidate Hillary Clinton wins, the Fed rate may approximate the one set by Bank of Canada which is being 0.5%. Meanwhile the Canadian dollar will become less appealing to investors. Bank of Canada Governor Stephen Poloz said on Monday the Bank will take additional steps to reach the 2% inflation target. This August it fell to the 10-year low of just 1.1%. On such data and statements by Canadian policymakers the chances for the Fed rate cut in mid-2017 rose from 20% to 50%. This may become yet another threat for Canadian dollar. Rate cut looks reasonable given weaker economic data. Canada’s GDP fell 1.6% year on year in Q2 2016. Current account shows deficit of C$19.9bn. Raw hydrocarbons account for about quarter of Canada’s exports so potential decline in global oil prices may have a negative effect on Canadian dollar. Unofficial data came out on Tuesday that OPEC member did not agree on oil output freeze in Algeria. The matter will be further discussed on OPEC November meeting this year. This week the Canadian GDP for July will come out on Friday, the outlook is moderately negative.
USDCAD
On the daily chart USDCAD: D1 has been rising for 5 months already and is struggling for returning to the previous uptrend. Monetary easing by Bank of Canada and lower oil prices may push the Canadian dollar further lower. On USDCAD chart it will look as growth.
The Parabolic indicator gives bullish signals.
The Bollinger bands have narrowed which means lower volatility and are tilted upwards.
The RSI is above 50 but far from the overbought zone, no divergence.
The MACD gives bullish signals.
The bullish momentum may develop in case the Canadian dollar surpasses the fractal high, 200-day moving average and returns to the previous rising trend: 1.328. This level may serve the point of entry. The initial stop-loss may be placed below the Parabolic signal and the last fractal low at 1.298. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most 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-loss level at 1.298 without reaching the order at 1.328, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical analysis summary
Position Buy
Buy stop above 1.328
Stop loss below 1.298

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