Forex Market: USD/CAD daily trading forecast

Yesterday’s trade saw USD/CAD within the range of 1.2931-1.3048. The pair closed at 1.2978, falling 0.31% on a daily basis, while marking its first loss in the past three trading days. The daily high has been the highest level since October 13th, when a high of 1.3081 was reached.

At 9:32 GMT USD/CAD was gaining 0.09% for the day to trade at 1.2995. The pair touched a daily high at 1.3024 at 7:40 GMT, but later it saw rejection in the area around 1.3010 (the range resistance level (R3)).

Today USD/CAD trading may be influenced by the events listed below.

Fundamentals

Canada

Bank of Canada interest rate decision

Bank of Canada’s (BoC) Governing Council probably left the target for the benchmark interest rate (overnight rate) without change at 0.50% at the policy meeting today, according to expectations. At its meeting on September 9th the central bank left its overnight rate intact at 0.50%, the Bank Rate at 0.75% and the deposit rate at 0.25%.

According to excerpts from the most recent BoC Statement: ”Inflation has evolved in line with the outlook in the Bank’s July Monetary Policy Report (MPR). Total CPI inflation remains near the bottom of the target range, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors.”

”Canada’s resource sector continues to adjust to lower prices for oil and other commodities, with some spillover to the rest of the economy. These adjustments are complex and are expected to take considerable time. Economic activity continues to be underpinned by solid household spending and a firm recovery in the United States, with particular strength in the sectors of the U.S. economy that are important for Canadian exports.”

”Meanwhile, risks to financial stability are evolving as expected. Taking all of these developments into consideration, the Bank judges that the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate. Therefore, the target for the overnight rate remains at 1/2 per cent.”

Short-term interest rates are of utmost importance for the valuation of national currencies. In case we witnessed a decision, which includes either maintaining or cutting the benchmark rate further, as a result of a more dovish view on economic development and inflationary pressure, this would have a significant bearish effect on the national currency.

The official policy decision is scheduled to be announced at 14:00 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.558% on October 20th, or the highest level since October 9th (0.567%), after which it closed at the exact same level to add 3.3 basis points (0.033 percentage point) compared to October 19th. It has been the first gain in the past three trading days.

The yield on US 2-year government bonds climbed as high as 0.637% on October 20th, or the highest level since October 13th (0.637%), after which it fell to 0.633% at the close to gain 3.6 basis points (0.036 percentage point) compared to October 19th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, expanded to 0.075% on October 20th from 0.072% during the prior day. The October 20th yield spread has been the largest one since October 16th, when the difference was 0.076%.

Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.545% on October 20th, or the highest level since September 25th (1.546%), after which it slid to 1.540% at the close to add 8.3 basis points (0.083 percentage point) compared to October 19th.

The yield on US 10-year government bonds climbed as high as 2.079% on October 20th, or the highest level since October 9th (2.138%), after which it slipped to 2.058% at the close to add 3.5 basis points (0.035 percentage point) compared to October 19th.

The spread between 10-year US and 10-year Canadian bond yields narrowed to 0.518% on October 20th from 0.566% during the prior day. The October 20th yield difference has been the lowest one since June 28th, when the spread was 0.434%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:

R1 – 1.2989
R2 – 1.3000
R3 (range resistance) – 1.3010
R4 (range breakout) – 1.3042

S1 – 1.2967
S2 – 1.2957
S3 (range support) – 1.2946
S4 (range breakout) – 1.2914

By using the traditional method of calculation again, the weekly pivot levels for USD/CAD are presented as follows:

Central Pivot Point – 1.2940
R1 – 1.3053
R2 – 1.3195
R3 – 1.3308

S1 – 1.2798
S2 – 1.2685
S3 – 1.2543