EURUSD Holds Support Ahead Of ECB; USDCAD Rallies To Two-Month-Highs

DOVES AT THE BANK OF CANADA, USDCAD TO FRESH TWO-MONTH HIGHS

This morning has brought the March rate decision out of the Bank of Canada, and the context coming into this morning’s meeting was a very weak Canadian Dollar as USDCAD had jumped-higher over the previous four trading days. I had looked at bullish reversals in the pair last Thursday, just ahead of the incline, but that was largely based on an Oil proxy. This saw USDCAD rally up to a fresh two-month-high, catching a bit of resistance in a zone that had previously helped to stall the January advance ahead of this morning’s rate decision.

At this mornings rate decision, the Bank of Canada took a dovish tilt by saying that the outlook continues to warrant a policy rate that is below its neutral range. The BoC also said that the slowdown in Q4 was sharper and more broadly-based than originally anticipated, and this brought even more CAD bears into the mix as prices broke out to fresh two-month highs. After three 25 basis point hikes last year

USDCAD 15-MINUTE PRICE CHART: RALLY THROUGH RESISTANCE

(Click on image to enlarge)

usdcad usd/cad 15 minute price chart

Chart prepared by James Stanley

Ahead of this morning’s announcement, USDCAD had moved up to fresh two-month-highs, testing above a zone that had reversed the January decline. There are three different long-term Fibonacci levels within a relatively tight space on the chart, and as discussed in yesterday’s webinar, this area carried the potential for reaction ahead of this morning’s rate decision.

USDCAD FOUR-HOUR PRICE CHART

(Click on image to enlarge)

usdcad usd/cad four hour price chart

Chart prepared by James Stanley

CANADIAN INFLATION SLOWDOWN

At the source of the Bank of Canada’s decision is a continued down-draft in headline inflation that’s been in place since last summer. After peaking at 3% in July, headline inflation hit a One-year-low in January, printing at 1.4%. This removes at least some of the motivation from the Bank of Canada to continue tightening rates, and this may lead to reversal scenarios down the road in the Canadian Dollar.

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