The Canadian dollar significantly strengthened its position against the US dollar after the Canadian regulator decided to raise interest rates.
The Bank of Canada
According to the data, the Bank of Canada raised the key interest rate by 25 basis points to 1.75%, indicating the confidence of the central bank in the prospects of the Canadian economy. Most likely, this decision was also dictated by the conclusion of a new North American trade agreement and an improvement in the situation with household debt.
During the press conference, the Bank of Canada announced the need to raise the interest rate to a neutral level in order to achieve the target level of inflation. The neutral rate range is 2.5%-3.5%. From the statements of the Bank of Canada, the word "gradually" was also removed, which the regulator used when describing further rates of rate increases.
The central bank is confident that the new trade agreement will reduce uncertainty, increase company confidence and investment, but the trade conflict between the US and China will continue to put pressure on economic growth.
Economists predict that Canada's real GDP is expected to grow by 2.1% in 2018 and 2019, but it will slow to 1.9% in 2020. Inflation will remain near the target level of 2% until the end of 2020.
Fundamental statistics on the US, which was released yesterday afternoon, showed support for the US dollar, which managed to strengthen its position against risky assets.
According to the data, activity in the US private sector in October this year increased due to the growth of activity in the service sector. According to IHS Markit, the PMI purchasing managers' index for the manufacturing sector in October was 55.9 points against 55.6 points in September, while economists had expected the index to reach 55.4 points in October.
The PMI for services also rose to 54.7 points in October from 53.5 points in September. The composite PMI index was at the level of 54.8 points.
Although the data are still preliminary, higher growth rates of new orders and employment will continue to contribute to the growth of the overall index.
According to the U.S. Department of Commerce, sales of new homes in the US fell for the fourth consecutive month in September. Thus, sales of new homes in September decreased by 5.5% and amounted to 553,000 homes per year. Economists had expected sales to decline 0.6 percent.
The speech of the President of the Federal Reserve Bank of Dallas Robert Kaplan did not affect the quotes of the US dollar.
Kaplan said he expects less interest rate hikes next year than this year. He believes that the Fed should continue to raise rates gradually and patiently in order to prevent a slowdown in economic growth.
As for the technical picture of the EUR/USD pair, today everything will depend on the decision of the European Central Bank on interest rates, which will become known in the afternoon.
The breakthrough of this month's lows in the area of 1.1380 will lead to the formation of a new downward wave with an update of major support levels of 1.1350 and 1.1300. In case of growth, the upward potential of risky assets will be limited by the resistance range of 1.1470 and 1.1520.
The material has been provided by InstaForex Company - www.instaforex.com