Daily Trading Analysis From ForexChaser

[ForexChaser]

Bank Of Canada Raises To 1%

The Bank of Canada decided to increase the Overnight Rate by another 0.25%, up to 1%. This is the third consecutive interest rate hike that the BoC operates in a time span of a little more than 3 months.

The Bank’s official statement has remained broadly unchanged from July’s rate hike: the global economy is recovering helped by the emerging economies, while the U.S. economy is advancing at a standstill pace. Turning to the Canadian economy, the BoC notes:

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity

This is quite important, because it suggests that the Bank of Canada might take a pause for the moment. In normal times, central banks raise rates to cool down the economy and to fight inflation. Neither one is the case right here, since Canada’s GDP was only 0.5% in Q2, while the CPI is currently standing at 1.8%, in line with the bank’s target. (click to enlarge)

The only reason way the BoC decided to lift rates so early was to avoid running an ultra-expansionary monetary policy for too long in an economy that has been somehow shielded from the credit crisis. Some of the side effects of having interest rate too low include: liquidity trap (think Japan), creating another bubble due to cheap money (think the U.S. housing bubble), or simply very high levels of inflation. It is expected that other central banks will take similar actions, but more likely, the Fed and the ECB will be among the last ones.

The interest rate announcement had quite a remarkable reaction in the currency market, with the Usd/Cad sliding approximately 100 pips in just a matter of minutes. Among the major currencies, the Canadian dollar posted the biggest intra-day gain against the U.S. dollar, of approximately 1%. Closely following was the Australian dollar, which gained 0.90% in Wednesday’s trade.

 

[ForexChaser]

For three days now the Usd/Cad had been dipping in the 1.0340 area, but it lacked the strength to break any lower. However, we reckon that this will be different now due to the bullish momentum seen in the market after Wednesday’s interest rate increase. As such, we favor short Usd/Cad plays for the moment, with longer term targets set in the 1.0100 area.

Short Limit Usd/Cad Entry: 1.0325; T1: 1.0265; T2: 1.0195; SL: 1.0380

 

[ForexChaser]

Expecting the Eur/Usd To Move Higher

Expecting the Eur/Usd To Move Higher

For almost a month, the Eur/Usd had been swinging up and down around the 1.2800 area without a clear direction or trend.

The pair had already three attempts to break lower, but each time it lacked the momentum to push below the support level. Interestingly, over the same period, the Eur/Usd saw some upticks in volatility, even thought the pair just traded side-ways. Trading a volatile pair in a side-ways market is usually seen very risky, and some traders avoid taking positions here. In such cases, we recommend traders to wait for a break of the support or resistance area, and only afterwards to place some trades.

In our case, the market was surrounded by bullish sentiment lately. Moreover, the S&P 500 futures are trading just below the 1025.00 area, which is the main resistance area since May 2010. Having the S&P 500 futures market holding in this area, the Eur/Usd might have some chances to break above the current congestion band. Primarily, we are looking at the break of the 1.2900 resistance area, with a longer term target set in the 1.3300 area.

On the fundamental side, the U.S. economy is still struggling, but the recent calls for another round of Quantitative Easing, additional tax cut and new Government spending programs are a major bullish factor for the equity markets, but very bearish for the U.S. dollar. Thus, we reckon that the Usd will lose ground over the upcoming period against the majors, such as the Eur, Aud or the Cad.

 

[ForexChaser]

Daily Currency Wrap: Majors Approaching Key Price Points

The major pairs and the S&P 500 have diverged to some extent in Monday trade. The day started very strongly in the currency market and continued on a strong momentum during the European and the U.S. sessions, but the price action of the futures indexes was sluggish most of the day. With today’s gains, the major pairs are trading near vital price points, which will probably have an important word to say over the next few days.

The Eur/Usd was the best performer of the day, gaining 180 pips. Moreover, the pair is approaching the 1.2900 resistance area, which has been in place for almost a month now. A break above this level would be very bullish, and with the S&P futures staying in the 1130.00 area, chances for such a move to come are quite high.

The Gbp/Usd was a real disappointment in intra-day trading, even though the pair traded rather volatile. The Asian session saw the Gbp/Usd gaining ground very fast, but then several sell-off episodes followed. On the daily chart, the pound had an effective range of only 120 pips over the last two weeks of trading, meaning that the market has no clear direction in regards to where the pair might move next. We recommend newer traders to avoid trading the Gbp/Usd until it develops a trend.

Carry trading and risk-tolerance had been two of the main factors that drove the Aud/Usd 15% higher over the last three months of trading. That is 60% in annualized terms, which is probably a record for any major pair. Moreover, the Aud/Usd is now trading in the 0.9350 area, which has been the main resistance area over the last two years of trading. A break above this level is very likely, but the Aud/Usd will need to catch a day of broad Usd weakness.

The Usd/Cad continues to trade in wide ranges, with most of the action concentrated around the European session. We expect the Usd/Cad to move slowly lower over the next two weeks, but the pair will run into some troubles around the 1.0200 area. This might be too soon now, but we expect the Usd/Cad to hit parity once again.

The Usd/Jpy seems to have hit a wall of orders in the 83.50 area. Some suggest that the BoJ is there safe-guarding the pair to avoid new lows, but the market will eventually prevail some say. We expect the Usd/Jpy to continue its downtrend as long as the state of the U.S. economy remains surrounded by uncertainty.