Overview
Oil is falling on comments from OPEC’s Secretary General Mohammed Sanusi Barkindo that it is too early to talk about additional production cuts. Moreover, Goldman Sachs (NYSE:GS) changed its view regarding oil’s future price and warned that oil could fall as low as USD40 per barrel if there is no further action from OPEC to increase the output cuts. Oil is currently trading at around USD46 per Barrel while the Canadian dollar has stopped its upside rally with USD/CAD trading between 1.285 and 1.294 for the past 3 days. The most significant factor that will determine the price of the Canadian dollar is today’s monetary policy meeting of the Bank of Canada and the expected rate hike. The BoC is widely expected to raise the interest rate by 25 basis points, from 0.5% to 0.75%, which is a bit risky in our view since the Loonie is running on an upside rally with the Canadian dollar jumping almost 10 cents up against the US Dollar in the last 2 months. The rate decision will be announced at 14:00 GMT following by Governor Poloz’s speech 75 minutes after. USD/CAD is moving a bit above 1.29 at the time of writing, which is a 10-month low. The levels to be watched to the downside are around 1.282 and 1.27 while any unexpected dovish announcement can send the pair up to the critical level of 1.30 and 1.308 thereafter.
At the same time with the BoC interest rate decision, Federal Reserve Chairwoman Janet Yellen delivers her semiannual testimony in front of the Congress. The testimony is going to be held today and tomorrow at the same time. During the testimony, Janet Yellen is expected to keep her policy view unchanged and most likely refer again to a rate hike before the end of the year and may provide some hints regarding the balance-sheet normalization plans as well. If the Chairwoman fails to give any details on the above mentioned topics, then the US Dollar is likely to sink even further with the EUR/USD approaching 1.15 and the Cable reaching 1.30. Yesterday, Lael Brainard - a Fed’s Board of Governors member, said that the Fed should reduce the size of its balance sheet soon but an additional rate hike is still in question.
And there are even more news from the US. The US sentiment is suffering from the latest news that the son of the US President, Donald Trump Jr., exchanging emails with Russians to aid his father’s presidential campaign and help him win the US 2016 presidential election. The updates on the topic show that Donald Trump Jr. accepted to help destroying the reputation of Hillary Clinton, the major competitor of his father in the US Election. If this is the case, then more downside risk and sentiment will dominate the US dollar.
A survey conducted by Deloitte revealed that 72% of the companies in the UK are likely to restrain their investments in the country due to the uncertainty and risks surrounding Brexit. This survey comes in line with the Bank of England Governor Mark Carney’s comments on the reality beyond Brexit and Chief Economist Andy Haldane’s and Deputy Governor Ben Broadbent’s hints of no rate hike in the near future. The Cable tested the psychological level of 1.28 to the downside earlier today since the positive release of May’s reduced unemployment helped the pair to recover up to 1.286 at the time of writing. The UK unemployment rate fell to 4.5% from April’s 4.6% while the Claimant Count Change was released at 6K against expectations of 10K showing that more British found job than expected during May. Those numbers rescued the Pound from falling lower at the moment but it takes more for the longer time frame to keep the pair above 1.28, a strong Dollar could push the pair lower.
Technical View
The Cable is running on a sharp short-term downtrend since the beginning of the month, falling from 1.3027 to 1.281 within two weeks. Despite Dollar’s weakness this month, the pound is the only major currency that is not appreciating against the US Dollar. The next valid support levels are near 1.284 and 1.28 while the resistances are near 1.291 and 1.298. A close above 1.291 would trigger a reversal. RSI and MACD are both slopping down, with RSI being above its equilibrium level and MACD below it. Moreover, ADX indicates no clear direction and the price has just cross SMA50 to the upside which is a bullish cross. The downtrend is still valid but in our view we would wait for the price to confirm a further downwards move before selling again as there are signals of some bulls getting into the market.
USD/CAD
The Loonie is taking a breath to the upside as it’s been rising for the past 3 trading days after a sharp fall. The pair seems to form a rising wedge pattern which is usually a continuation pattern of the prevailing downtrend. However, the pair is not done yet and has crossed to the upside SMA50 and SMA100. A cross above SMA200 which coincides with the upper band of the wedge and 1.295 would signal a first reversal sign of the prevailing downtrend. Both MACD and RSI are slopping downwards but they are still above their equilibrium levels while Stochastics indicates a sell signal by crossing its overbought level to the downside. The next valid support level is the psychological price of 1.29 and then 1.286. On the flip side, the valid resistance levels are near 1.295 and 1.30.
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