Daily Analysis | 18 January 2018
The Bank of Canada decided to raise interest rates to 1.25% from 1.00% yesterday, as the market was expecting. The statement accompanying the decision urged caution and was perceived by various analysts as dovish. Hence, there was high volatility upon the announcement, however, it settled down quickly with little to no weakening for USD/CAD. The statement accompanying the decision stated that there is increased uncertainty stemming from the future of the NAFTA Agreement. The statement also stated that GDP was to rise by 2.2% in 2018 and inflation is to remain near 2% over the projection horizon. These two points should support the argument for the BoC to remain on the sidelines possibly without taking any further action in the near future or at least until the fog clears up. Such a development could be of neutral to negative effect for the CAD. However, the overall strength of a currency is decided by multiple factors and in CAD’s case also by oil prices. Having said that, it would be important to stress that Governor Poloz said on earlier occasions, that it is not so much the tone of the accompanying statement that clarifies the future interest rate hike path, as it is the various financial date preceding any BoC meeting. The USD/CAD had a volatility of about 170 pips yesterday, during the release of BoC’s interest rate decision, however, it more or less traded in a sideways manner throughout the day testing the 1.2450 (R1) resistance line. We expect the pair to continue to trade in a sideways manner, however, it could be influenced by the release of the US financial data regarding the housing starts and the crude oil inventories. Should the pair come under buying interest, we expect it to break the 1.2450 (R1) resistance level and aim for the 1.2520 (R2) resistance hurdle. Should there be increased selling interest the pair could break the 1.2350 (S1) support barrier and hover slightly below it.
- Support: 1.2350(R1), 1.2250(R2), 1.2100(R3)
- Resistance: 1.2450(S1), 1.2520(S2), 1.2593(S3)
Bitcoin takes a dip
Bitcoin took a 2200 USD dip yesterday, however, it rebounded, sparking new conversations about how volatile it actually is. As suggested by media reports the drop reflects the effect of increased efforts made by regulatory authorities to set cryptocurrencies under control. There seems to be unrest in the market, as Korean authorities reiterated their intentions for measures to set the cryptocurrency market under control or ban it altogether, despite local public’s dismay. Another possible reason could be that investors in South East Asia try to cash out for personal expenditure ahead of upcoming holidays. We expect the market to continue in a bearish mode and consider the high volatility, as well as past months, drop to continue, as part of a process for the cryptocurrency to become a mature investment asset, if it makes it to that point. Bitcoin had a significant drop yesterday, testing and breaking for a few minutes the 8920(S2) support level and then rebounded regaining most of its losses. We see the case for the bears to continue to have the upper hand on the market as analyzed in fundamentals above. Technically, one should take notice of the moving averages convergence as well as the rather low Relative Strength Index reading, supporting the fundamentals case as well as the downtrend line which is formed since December 18th. Should the bears continue to have the upper hand, Bitcoin could break the 10500 (S1) support level and aim for the 8920 (S2) support barrier. Should the 8920 (S2) support line be breached, it could open the way for the 7470(S3) support zone. On the other hand, should the bulls take the driver’s seat, the cryptocurrency could break the 12000 (R1) resistance line, aiming for the 14000 (R2) resistance level.
- Support: 10500(S1), 8920(S2), 7470(S3)
- Resistance: 12000(R1), 14000(R2), 15580(R3)
In today’s other economic events:
We highlight the release, from the US the housing starts data for December and later on the crude oil inventories. As for speakers, Bank of France Governor Villeroy de Galhau and ECB Board member Benoit Coeure speaks.
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