Bank of Canada remained on hold at +1.50% as expected yesterday, however, signaled its readiness to hike but is currently in a wait and see position regarding the NAFTA negotiations. The bank effectively described an economy near its capacity and at the same time adopted a language which highlights trade tensions and NAFTA. USD/CAD rose upon the release of the statement however corrected later on. On other news, the NAFTA negotiations are to begin again and despite the Canadian PM stating that Canada will not sign a bad deal, US president Trump stated that the US will find out in a few days if Canada is going to be part of NAFTA. Should there be further headlines on NAFTA, we could see volatility rising.
USD/CAD traded in a sideways manner yesterday, teasing the 1.3175 (R1) resistance line. As the pair broke the upwards trend line incepted since the 30th of August, we lift our bullish bias in favor of a sideways movement scenario however further bullish tendencies could occur. It should be noted that the RSI indicator remained near the reading of 70 in the 4h chart, continuing to point towards an overcrowded long position. Should the bulls take over again, we could see the pair clearly breaking the 1.3175 (R1) resistance line and even the 1.3210 (R2) resistance level, aiming for the 1.3245 (R3) resistance area. Should the bears dictate the pair’s direction we could see it breaking the 1.3137 (S1) support line and aim for the 1.3100 (S2) support barrier.
Sterling jumps on Brexit news
GBP jumped on Bloomberg headlines stating that Germany and the UK seem to be willing to accept a preliminary deal with fewer details regarding Brexit. Such an agreement could ease the way towards Brexit substantially, however, the Irish border issue and parliamentary approval may prove difficult to be overcome. At the same time, a poll conducted by Reuters showed that the pound would make solid gains of around 6% should the UK reach a deal about Brexit while drop at 8% should negotiations collapse. A number of analysts reiterated their conviction that some kind of deal will be reached and further headlines on the issue could increase the volatility of the GBP.
GBP/USD rallied on the news yesterday, breaking consecutively the 1.2835 (S2) and the 1.2895 (S1) resistance lines, now turned to support. We see the case for the pair to trade in a sideways manner today, however it may prove sensitive to any further Brexit headlines as well as any USD strengthening during the day. Should the pair be underselling interest, we could see it breaking the 1.2895 (S1) support line and aim if not break the 1.2835 (S2) support zone. Should the market favour long positions of the pair, we could see it breaking the 1.2960 (R1) resistance line aiming for the 1.3020 (R2) resistance barrier.
In today’s economic highlights:
During the European session, we get from Germany the industrial orders growth rate for July, while in Sweden Riksbank is to reach an interest rate decision and is expected to remain on hold at -0.50%. In the American session from the US, we get the ADP national employment figure for August, the factory orders growth rate for July, the ISM nonmanufacturing PMI for August and the EIA crude oil inventories figure. From Canada, we get the building permits growth rate for July. As for speakers, please note that ECB’s Sabine Lautenschlager, New York Fed president John Williams, and BoC deputy governor Carolyn Wilkins speak.
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