Canadian Dollar: USD/CAD (CAD=X) Reacts to Fed Rate Cut
The Canadian dollar is vulnerable to renewed selling pressure after the U.S. Federal Reserve surprised markets yesterday. The Fed slashed the Fed Funds range to 1.0-1.5% from 1.5-1.75%, in the first in rate action between scheduled meetings since 2008.
The Fed statement was short and to the point. It read “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1-1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”
Wall Street did not react in typical fashion. Usually, a large and surprise interest rate cut would send the major stock indexes soaring. Not this time. The Dow Jones Industrial Average, S&P 500, and NASDAQ plunged, closing with loses close to 3.0%. Traders did not believe the Fed’s actions would do anything to support an economy suffering from coronavirus triggered, supply chain disruptions.
The 50-basis-point rate reduction wasn’t enough for President Trump. He tweeted “The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
The Canadian dollar is not getting much support from the overnight rally in crude prices. West Texas Intermediate (WTI) climbed to $48.20/barrel from $46.82. The rally was due to rumours that Saudi Arabia and the Organization of the Petroleum Exporting Countries were seeking larger than expected production cuts to shore up prices.
Today’s U.S. Institute for Supply Management Non-manufacturing Purchasing Managers Index report will be ignored because of yesterday’s Fed action.
Overall, the bias in prices is: Upwards.
By the way, prices are vulnerable to a correction towards 1.32.
The projected upper bound is: 1.35.
The projected lower bound is: 1.33.
The projected closing price is: 1.34.
A white body occurred (because prices closed higher than they opened).
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 30 white candles and 20 black candles for a net of 10 white candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
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 46.7274. This is not an overbought or oversold reading. The last signal was a sell 2 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 63.40. 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 sell 16 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 99. This is not a topping or bottoming area. The last signal was a sell 1 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 4 period(s) ago.
Rex Takasugi – TD Profile
FOREX CAD= closed up 0.001 at 1.339. Volume was 53% above average (neutral) and Bollinger Bands were 8% narrower than normal.
Open High Low Close Volume___
1.338 1.343 1.333 1.339 84,585
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1.33 1.32 1.32
Volatility: 7 5 5
Volume: 78,128 55,765 64,073
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 1.4% above 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 moderate flows of volume into CAD= (mildly bullish). Our trend forecasting oscillators are currently bullish on CAD= and have had this outlook for the last 30 periods.