31.10.201800:51 Forex Analysis & Reviews: USD/CAD: tops cannot, bottoms do not want to

Análisis a largo plazo

Despite the tightening of monetary policy and the "hawkish" rhetoric of the head of the Bank of Canada, the loonie continues to stay above the 30th figure. By and large, the Canadian dollar is stuck in a wide-range flat — the upward momentum has faded, and there are not enough arguments for the downward movement. Therefore, the events of the next few days are of such great importance for the USD/CAD – they will help to direct the price in one direction or another

Exchange Rates 31.10.2018 analysis

The economic calendar of this week is really full of events: Canadian regulator Stephen Poloz will speak in Ottawa today, data on the growth of the Canadian economy will be published tomorrow, and key data on the labor market will be published on Friday. Also, we should not forget about American Nonfarms, which have traditionally had a strong influence on dollar pairs. In addition to macroeconomic statistics, the dynamics of the US-China trade conflict will determine the mood of the traders. The latest rumors and comments are controversial, so the intrigue on this issue remains.

But let's start with the internal macrostatistics. According to most experts, the annual growth rate of Canada's economy in August will be 2.4% – at this level, the country's GDP came out in June and July. Such dynamics will not disappoint, but will not "inspire" traders, because such figures are already included in the current prices. Here it is worth remembering the market reaction to the third rate hike this year-after the "formal" downward impulse, the pair returned to its previous positions, and a little later the Canadian dollar even weakened under the influence of a strong greenback. The fact is that the "hawkish" rate of the Bank of Canada was widely expected, so the rhetoric of Stephen Poloz could only keep the Canadian currency from a larger devaluation, but did not contribute to its strengthening. Therefore, if the country's GDP growth data come out at the forecast level, the market reaction can be very cool.

But "Canadian Nonfarm" can produce a more significant effect. The unemployment rate should remain at the same level – 5.9%, and the number of employees should increase by 10,000. This is somewhat weaker than the September result (when the increase was 63,000 – an annual record), but still indicates a positive dynamics. In addition, according to some experts, in September there will be an increase in full-time employment. Indirectly, this is evidenced by the results of a study of the Canadian central bank, according to which companies in October were more likely to hire employees.

Exchange Rates 31.10.2018 analysis

If data on Canadian GDP growth and the labor market come out at least at the projected level, the probability of maintaining the "hawkish" rate of the Bank of Canada will increase, despite the decline in the oil market. At the same time, such figures are unlikely to provoke a trend reversal (downward impulses do not count), as the market, by and large, is ready for such a scenario. But if the key indicators come out in the "red" zone, the reaction will be more turbulent due to the deviation from the above "baseline" scenario.

In other words, the long-term downward trend of the USD/CAD is possible rather due to the weakening of the US currency, while the macroeconomic statistics of Canada plays a supporting role. For example, today's dynamics of the pair is due to a decrease in interest in the greenback after the unexpected statement of Donald Trump. In his interview, he said that a "grandiose" trade deal on its scale could be concluded between China and the United States.

Here it is worth recalling that exactly a month later – November 30 – in the framework of the G20 summit in Buenos Aires, Donald Trump is scheduled to meet with Chinese President XI Jinping. Many analysts have high hopes for this meeting, which can mitigate the months-long trade conflict. However, not all experts are so optimistic – according to insider information, the parties are not preparing a draft trade agreement, and this meeting can only "bring together the positions" of the leaders of the superpowers.

Moreover, if bilateral negotiations fail, the US could raise tariffs on all remaining Chinese imports. According to Trump, the $250 billion and $267 billion restrictions are "waiting for their turn" and will be put into effect if, following the results of the G20 summit, China sticks with its positions.

Thus, the fact of a possible "truce" between the US and China slightly reduced the demand for the US currency, which affected the current dynamics of the USD/CAD pair. But since this fact is too hypothetical, the bears of the pair failed to leave the 31st figure.

The technical picture of the USD/CAD so far speaks in favor of moving upwards. The pair is above the Kumo cloud of the Ichimoku Kinko Hyo indicator and above all its lines. The bullish "Parade of lines" signal indicates the potential for further price growth. In addition, the pair is located between the middle and upper lines of the Bollinger Bands indicator. This also indicates the bullish sentiment of traders.

Exchange Rates 31.10.2018 analysis

The nearest target of the upward movement can be seen at 1.3180 - this is the resistance level and the upper line of the Bollinger Bands indicator on the D1 timeframe. Stop-loss can be placed in the area of the support level - this is the upper limit of the Kumo cloud (price 1.3080).

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Irina Manzenko,
Experto analítico de InstaForex
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