Canadian Dollar: USD/CAD (CAD=X) Price Skyrockets Over $1.31 On Dovish Bank Of Canada Statement
The USD/CAD has burst higher today on the dovish Bank of Canada (BoC) monetary policy statement. Compared to this morning’s price, USD/CAD trades more than 100 pips higher.
Fundamental analysis: BoC unexpectedly dovish
Bank of Canada left its key policy rate unchanged at 1.75% at its January policy meeting. However, the BoC surprised investors and analysts with a more dovish statement on monetary policy.
“Sharp escalations of Middle East tensions could have a significant effect on the economy. The total impact of trade tensions expected to cut global GDP by 1.2% by the end of 2021, down from 1.3% forecast in October,” the bank said in the statement.
Analysts see the statement as dovish as the bank has opened the door for a future rate cut due to a slowdown in the Canadian economy. As stated, the economy no longer operates close to capacity, and further slowdown may make the BoC cut rates earlier than previously anticipated.
These are three key takeaway messages from the statement that sent the loonie (USD/CAD) higher.
“Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October.”
“Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand.”
“In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast.”
Technical analysis: Approaching important resistance
This morning, the USD/CAD traded around the $1.3040 mark in a ranging session, as investors anticipated the outcome of the BoC meeting. Seconds after the announcement, the USD/CAD skyrocketed higher on more dovish policy statement.
The initial move higher pushed the price action through the intra-day resistance of $1.3100, as well as the 200-DMA at $1.3070. The bulls are now approaching the key short-term resistance at $1.3160, where the two-year ascending trend line (the orange line) and the 100-WMA intersect.
Overall, the bias in prices is: Sideways.
The projected upper bound is: 1.32.
The projected lower bound is: 1.30.
The projected closing price is: 1.31.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 22 white candles and 28 black candles for a net of 6 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 74.7790. This is not an overbought or oversold reading. The last signal was a buy 13 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 59.49. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 11 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 166.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 11 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 9 period(s) ago.
Rex Takasugi – TD Profile
FOREX CAD= closed up 0.007 at 1.314. Volume was 1% below average (neutral) and Bollinger Bands were 25% narrower than normal.
Open High Low Close Volume___
1.306 1.315 1.303 1.314 56,839
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 1.31 1.31 1.32
Volatility: 4 5 5
Volume: 50,631 47,982 67,399
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX CAD= is currently 0.7% below its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of CAD= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on CAD= and have had this outlook for the last 0 periods.
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