Forex Signals Brief October 25: Bank of Canada to Keep Rates at 5.00%
Yesterday’s Market Wrap
Yesterday the USD regained ground as treasury rates started to increase again, while the Eurozone PMIs reports were pretty weak. EUR/USD almost touched 1.07 75 pips but reversed and closed the day around 1.06. A similar scenario took place in GBP/USD. It began with a four-week high and ended with a significantly lower close.
Yesterday’s outside day in the 10-year was verified by a further drop in yields to 4.82, however this wasn’t the case early on as bond yields recovered. An early concession ahead of the two-year auction didn’t last long, as the market finally sorted it out and the $51 billion sale went down without a hitch, resulting in a loss of $5 billion.
USD/JPY has returned to the 150.00 level after dipping to 149.30s. There is discussion of further stimulus in Japan, which may provide the BOJ cover to hike interest rates, but there’s nothing certain for now. More importantly, China turned on the stimulus taps, resulting in Australian outperformance and significant increases in US-listed Chinese equities. The CAD on the other hand fell lower as Oil prices tumbled to $83.
Today’s Market Wrap
The Q3 CPI inflation report from Australia will open the day today and it is projected to be 5.3% vs. 6.0% previously, while the Q/Q reading is expected to be 1.1% vs. 0.8% previously. The RBA is more likely to focus on the core measures, with the Trimmed Mean CPI Q/Q projected to be 1.1% vs. 0.9% previous and the Y/Y reading forecast to be 5.0% vs. 5.9% prior, and the Weighted Mean CPI Q/Q expected to be 1.0% vs. 1.0% prior and the Y/Y reading expected to be 5.0% vs. 5.5% prior. The last RBA Minutes were more hawkish than expected, implying that an upward surprise in CPI data might increase the likelihood of another rate hike.
The BOC meeting will follow in the US session. Given the recent shortfall in the CPI data, the Bank of Canada is projected to hold interest rates steady at 5.0%. Prior to that, there was a high likelihood that the BoC would have increased by 25 basis points as underlying inflation indicators continued to surprise to the upside and wage growth continued to move upward. If the Bank of Canada surprises the market with a rate hike, the Canadian Dollar is expected to fall after an initial surge.
The European Central Bank president Christine Lagarde is speaking in the afternoon. The market consensus is that the ECB will maintain all three of its key interest rates, with markets effectively signaling a 100% possibility of such an event. The September policy statement stated that the GC currently believes that rates “have reached levels that, if maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.” The headline Y/Y CPI declined to 4.3% in September from 5.2% in August, while the super-core indicator fell to 4.5% from 5.3%. Furthermore, the Composite Eurozone PMI for September increased to 47.2 from 46.7, but remained in contractionary territory, according to the accompanying report, with “output volumes across both the manufacturing and services sectors remaining low.”
Forex Signals Update
Yesterday the volatility remained low during the Asian session, but increased in the European session as US Treasury yields resumed the bullish momentum after yesterday’s retreat, although they returned back down again. Risk currencies surged higher while the USD retreated lower. We were long on the USD, although closed the trades in profit before the USD decline started,
GOLD Remains Well Supported
Gold prices have profited considerably from the Middle East instability, reaching their highest level since late July on Friday night, at $1,997. Short-term demand for gold is increasing as global fears over the Middle East conflict intensify. The XAU/USD pair fell below $1,810 in late September as the USD gained significant momentum, but then reversed around when geopolitics took hold. Gold is now back above $2,000, having risen about $180 in the preceding two weeks.
XAU/USD – 60 minute chart
- Gold Buy Signal
- Entry Price: $1,977.08
- Stop Loss: $1,963.08
- Take Profit: $1,985.08
NZD/USD Returns Back Down
As risk assets like commodity currencies declined in value relative to the US dollar and had been down for more than two months, the New Zealand dollar went negative in July. Even yet, since early September, the NZD has been holding up better and has been trading in a range, with a support zone below 0.59. Risky assets were negatively impacted by China’s economic difficulties, although recently, there have been some improvements. Yesterday this pair retraced higher and climbed above the 100 SMA (green) on the H1 chart, although this is unlikely to continue higher.
NZD/USD – 240 minute chart
Cryptocurrency Update
BITCOIN Surges Above $35,000
The cryptocurrency market had two spikes last week. The first occurred early in the week when Coin Telegraph revealed that the SEC had authorized a spot ETF, pushing Bitcoin to $30,000. However, the price pulled back to $28,000 and stabilized there for a few days until the positive trend reappeared later in the week. Bitcoin completed the week around $30,000 after pushing higher once again. Following some encouraging news, Bitcoin surged past $35,000 yesterday as SEC reissued permission for the Bitcoin ETF following a grayscale court judgment.
BTC/USD – Daily chart
- BTC Buy Signal
- Entry Price: $26,248.2
- Stop Loss: $24,500
- Take Profit: $28,000
ETHEREUM Faces the 200 Daily SMA As Resistance
Yesterday ETH/USD also surged higher although the move was smaller. Late last month, Ethereum’s price began to surge above its support level, showing that there was some purchasing interest and demand for Ethereum at roughly $1,600. Buyers have regularly entered the zone above this level, but the daily chart’s 100 SMA (green) has acted as resistance. Following the recent rise, this surge took the price above the 200 daily SMA (purple) but the rice has retreated back down and is closing the day at this moving average.
ETH/USD – Daily chart
- ETH Buy Signal
- Entry Price: $1,671.79
- Stop Loss: $1,371
- Take Profit: $1,971
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