Trading plan for 31/01/2019:
Dovish surprises in the FOMC decision bring the weakness in USD and rally in the stock market
The dollar loses after the publication of the FOMC statement. The market is focused on three new elements: the Fed has removed the mention of gradual interest rate increases. In its place appeared a fragment with a patient approach to further changes in the level of rates (this departs the specter of the hike in March). At the same time, the FOMC is ready to consider changes in the policy of reducing the balance sheet total. As a result, the USD is also the weakest currency during the Asian part of the session. EUR / USD remains just above 1.15, USD / JPY at 108.80, and GBP / USD at 1.3130. The government PMI Manufacturing data from China in January increased modestly to 49.5 from 49.4, but it was still better than expected 49.4. The index for the service sector jumped to 54.7 from 53.8 (threshold 53.8).The US indexes climbed on four-month highs, as the Fed's continued moderation in policy tightening is good news for emerging markets and general risk appetite. Chinese Shanghai Composite grows 0.3%, Hang Seng gains 1.0%, and Nikkei225 grew by 1.06%.
On Thursday, the 31st of January, the event calendar is not that rich in important data release, but the global investors should keep an eye on Unemployment Rate and Unemployment Change data from Germany, the GDP data from Eurozone, Gross Domestic Product and Raw Materials Price Index data form Canada and Unemployment Claims and Personal Spending data from the US. There is a speech from ECB's Yves Mersch scheduled at the late morning hours.
USD/CAD analysis for 31/01/2019:
The main event today is the Canadian GDP release at 13:30 pm GMT and the global investors expect a significant decline in the GDP from the level of 2.2% to 1.6% on the yearly basis. On the monthly basis expectations are low as well: a decrease from 0.3% to -0.1% is being expected.
A comprehensive measure of Canada's overall production and consumption of goods and services. GDP is a significant report in the forex market, serving as one of the primary indicators of a country's overall economic health. Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian Dollar, while negative readings are generally bearish.
Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.
Let's now take a look at the USD/CAD technical picture at the H4 time frame. The Canadian Dollar deterioration continues. The pair just hit the 61% Fibonacci retracement level of the last big multi-week swing up and this is a very important support level. At the lower time frame, the pair made a 1:1 Fibonacci measured move to the level of 1.3117, just two pips below the 1.3119 where the Fibonacci level is. The trend is clearly down, both at the big and smaller time frames. There is a chance for a pull-back if the GDP data will surprise to the upside and the short-term target level for the bounce is seen at the level of 1.3158, 13178 and 1.3200.
