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Today’s Trading Edge: USD/CAD rallies as BOC sees elevated risks of weak inflation and growth

Posted by WorldWideMarkets . on Sep 7, 2016 4:59:31 PM

WWM_USDCAD_SEPT_7TH_2016.jpg

USD/CAD snapped a four-day losing streak following the Bank of Canada (BOC) rate decision.  The Bank announced that it is maintaining its target for the overnight rate at 0.5%. The BOC has cut rates twice in 2015 by total 50bps, with the last cut taking place on July 15th 2015.

The rate decision highlighted that global growth in the first half of 2016 was slower than the Bank had projected in its July Monetary Policy Report (MPR), although the Bank continues to expect it to strengthen gradually in the second half of this year. The US economy was weaker than expected in Q2, notably reflecting a contraction in business and residential investment. While a healthy labor market and solid consumption should remain supportive of growth in the rest of the year, the outlook for business investment has become less certain. Meanwhile, global financial conditions have become even more accommodative since July.  On balance, risks to the profile for inflation have tilted somewhat to the downside since July.

The USD/CAD daily chart displays the bullish reaction rebounded from a 3-week low and currently faces initial resistance from both the 100-day SMA and 50-day SMA which respectively trades around the 1.2941 and 1.3006 levels.  Major resistance remains the 1.3265 region. 

If the bearish move returns, the next support zone is the 1.2780-1.2800 area.  If we see a daily close below the 1.28 level, price may target the 1.2600 level.        

The trade: Buy USD/CAD at 1.2850 with a stop loss at 1.2750 and take profit at 1.3150.  The risk/reward ratio is 1:3

Topics: Loonie, Bank of Canada, USDCAD, Dollar-Cad, Canada Economy

 

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