We said yesterday (here) that the BOC was expected to keep the overnight rate at 0.25% but that it’d be likely to announce a cut of $1 billion (to $3 billion) in its bond-buying program due to the economic recovery being stronger than expected. It was our view that this would strengthen the CAD against the USD. USDCAD closed down almost 0.90% in high volume trading. More on USDCAD technicals below.  By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

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There is both good and bad pandemic news this morning. The BBC reports that President Biden is about to reach his target of vaccinating 200 million Americans in the first 100 days of his Presidency. By Thursday, Mr Biden said yesterday, 80% of over 65-year-olds have received at least one vaccination. 

At the same time coronavirus crisis in India is getting badly out of hand. The country has seen over 300K new covid cases in just 24 hours. The second wave has been much worse than the first with big religious festivals contributing to the spread of the virus while the shortage of hospital beds and oxygen make it impossible to treat the patients. This has, according to the BBC, lead to 2104 new deaths – the worst daily death toll by far.

Bloomberg reports that Shinovac, the most widely distributed Chinese vaccine in third world countries has an efficacy rate of only slightly over 50%. The 50% level is the lowest threshold to be considered as being useful in preventing the spread of the virus. This is highly worrying as the developing countries as high populated and low efficacy rate means the virus can spread more easily.

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The UK inflation numbers came in slightly better than expected yesterday and there was no significant reaction in GBPUSD. Canadian CPI release was overshadowed by the BOC statement of decreasing stimulus by 25% and the 0.1% miss (0.6% expected) in the CPI was under the circumstances meaningless. The crude oil inventories in the US increased by 600k barrels instead of a drawdown of 3.7 million. The USOIL declined 2.34% in yesterday’s trading. Today’s highlights are the ECB rate decision and press conference at 11:45 am GMT. For more details, see our economic calendar here.

We highlighted yesterday that the BOC was expected to cut its asset purchases by as much as $1 billion (25%). Our conclusion was that this massive cut in their bond-buying program would bring the USDCAD down. The pair was already trading at a resistance level and even though the initial reaction was contrary to our view it made no sense and invited institutional selling. The move lower was halted near to our support level at 1.2470. Yesterday’s low was only 0.10% below the support. 

This really highlights the fact that (once again) our analysis was in line with the institutional analysis and trading activity. Now the pair is trading near to a support area but once again inside the descending price channel. A decisive violation of 1.2470 would be bearish and indicate a move to 1.2365 while the next key resistance level is at 1.2653. This level coincides with the 50% retracement level making the area highly significant in a technical sense. A break above the 1.2653 would indicate the pair could move to the 61.8% Fibonacci retracement level at 1.2736.

The price of oil has been pressured by the covid-19 crisis in India which makes investors worried about the future of the economic recovery globally. The crisis and the higher than expected crude oil stockpiles in the US drove the USOIL to our confluence zone (60.45 – 61.30). We highlighted this zone in the last Weekly Market Review (here). Now USOIL has consolidated at this level today and if this continues we can start to focus on the long side again. The area is important as we have the 20-day SMA, recent S&R levels and the price channel low nearby. The next significant resistance level is at 64.34. If the channel low is violated then the next important support area can be found near the 61.8% retracement level. To see our analysis on this support zone watch this video from 14 minutes onwards.

Recent macroeconomic data releases

  • UK Claimant Count Change 10.1K, 24.5K expected
  • UK Unemployment Rate 4.9%, 5.0% expected
  • New Zealand CPI 0.8%, 0.8% expected
  • New Zealand Retail Sales 1.4%, 1.0% expected
  • UK CPI 0.7%, 0.8% expected
  • Canadian CPI 0.5%, 0.6% expected
  • Canadian Overnight Rate 0.25%, 0.25% expected
  • US Crude Oil Inventories 0.6M, -3.7M expected

Important macroeconomic data releases today

  • ECB Monetary Policy Statement
  • ECB Main Refinancing Rate 0.00% expected
  • ECB Press Conference
  • US Unemployment Claims 607K expected

For more details, see our economic calendar here.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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