Global macro overview for 13/07/2017:
The Bank of Canada decided to hike the interest rate from 0.5% to 0.75% as expected. The Bank of Canada made the first rate hike since 2010, but more importantly, it did not close the road for further tightening. In the BoC Rate Statement, we can read, that a significant amount of economic stagnation has been absorbed by the economy and the output gap is expected to close sooner than expected (by the end of 2017 compared with previous estimates of during the first half of 2018). The 2018 GDP forecast was revised up to 2.0% from 1.9% after expected growth of 2.8% for this year from the previous estimate of 2.6%. The BoŠ” inflation expectations remain below target, but the bank expects this to be due mostly to temporary factors such as competition in food prices and electricity rebates and still sees the inflation to hit 2.0% by the end of 2018. As usual, any other interest rate adjustments will be depending on incoming economic data from Canadain and world economy.
BoC President Stephen Poloz actively avoided answering whether the increase was just a reversal of the anti-crisis measures of last year or the beginning of a new monetary cycle. Inability to give the straight answer was treated by global investors as another hawkish clue, so the Canadian Dollar started to appreciate massively across the board as the market was trying to price in another hike by the end of the year and possibly further hikes in 2018. As a result, USD/CAD retreated to fresh 10-month lows below 1.2850 level.
Let's now take a look at the USD/CAD technical picture on the H4 time frame. The market is trading in oversold conditions with a visible bullish divergence at this timeframe. The next important technical support is at the level of 1.2653 and the next technical resistance is seen at the level of 1.2858.
