Advertisement
Advertisement

Daily Outlook and Review: BoC Eyed; USD/CAD Approaching Resistance

By:
Aaron Hill
Published: Dec 6, 2022, 20:15 UTC

Check out the latest market review and technical outlook, on a day set to welcome the BoC's last rate decision of the year.

Canadian Dollar FX Empire

In this article:

The RBA Increased the Cash Rate By 25 Basis Points

Tuesday witnessed the Reserve Bank of Australia (RBA) increase the Cash Rate by 25 basis points to 3.1% from 2.85%—the highest level since late 2012. This, its last meeting of 2022, is also the central bank’s 8th consecutive rate hike this year. The immediate reaction observed the Australian dollar advance against its US counterpart, rallying 0.3% in 15 minutes before levelling off and eventually retesting pre-announcement levels heading into European trading hours.

undefined

Key comments out of the RBA’s December statement:

  • Inflation remains high at 6.9% on a year-over-year basis.
  • According to the board, inflation is anticipated to continue rising and expected to level off at approximately 8%.
  • The Australian economy is continuing to grow solidly. Economic growth is expected to moderate over the year ahead as the global economy slows.
  • The labour market remains very tight, with many firms having difficulty hiring workers.
  • The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments.
  • The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.

The statement can be accessed here https://www.rba.gov.au/media-releases/2022/mr-22-41.html.

UK Construction Falls

Construction growth out of the UK dipped to a 3-month low on Tuesday.

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said:

‘Stalling house building activity contributed to the weakest UK construction sector performance for three months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook.

Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.

The number of construction firms anticipating a rise in overall business activity during the year ahead exceeded those forecasting a decline by only a very fine margin during November. Moreover, disregarding a three-month period of negative sentiment at the start of the pandemic, our survey measure of business expectations across the construction sector was the joint-weakest since December 2008’.

Full release can be accessed here https://www.pmi.spglobal.com/Public/Home/PressRelease/d6c047e84a89436cae8fef309f357cf4.

undefined

Bank of Canada (BoC) on the Radar at 3:00 pm GMT

Behind the RBA’s decision to hike by 25 basis points on Tuesday, the Bank of Canada (BoC) is next on the table today with many desks emphasising a divided opinion between a 25 or 50 basis-point Overnight Rate increase. According to short-term interest rate markets, however, there is, at the time of writing, a 73.1% chance of a 25 basis-point hike versus a 26.9% probability of a 50 basis-point hike.

Technical View for The Dollar, Sterling and Canadian Dollar

US Dollar Index Circling Beneath its 200-Day Simple Moving Average

Technically, according to the US Dollar Index, the US dollar recently entered a bearish phase after dropping under the 200-day simple moving average, currently at 105.64. We have also seen the 50-day simple moving average at 109.71 flatten out and dip lower after pointing higher since June 2021. However, the 50-day SMA has yet to cross under the 200-day SMA to form what technicians will recognise as a Death Cross: action suggesting the possibility of a longer-term downtrend.

As we can see, price is also on the verge of retesting the underside of the 200-day SMA, in line with the relative strength index (RSI) indicator’s value testing channel resistance, extended from the high 78.21.

Assuming the unit maintains a bearish stance beneath the 200-day SMA (which will be closely watched to form resistance [think mean-reversion strategies]), support calls for attention at 102.36: a Quasimodo formation. This level is also accompanied by a 61.8% Fibonacci retracement ratio at 102.34 as well as a 50.0% retracement at 102.18.

US Dollar Index Daily timeframe. Source: TradingView

GBP/USD: Testing an Interesting Technical Juncture

Sterling ended Tuesday lower versus the US dollar.

Following a record low of $1.0357 in late September, a spirited pullback has emerged, rallying nearly 19.0%. Albeit impressive, the longer-term trend direction on the weekly timeframe has faced south since early 2021. Resistance on the weekly scale also warrants consideration at $1.2263, a level boasting historical significance since late 2019.

Out of the daily timeframe, the central technical feature is the active Fibonacci cluster between $1.2317 and $1.2437 (note that the 50.0% retracement is not a Fibonacci ratio), which happens to reside just north of the weekly resistance at $1.2263. Technicians will also acknowledge that the unit is now trading above the widely watched 200-day simple moving average, currently fluctuating around $1.2135. Chartists who employ the relative strength index (RSI) may also recognise that the indicator recently levelled off ahead of overbought territory, following a retest of the 50.00 centreline in early November.

Overall, although daily flow is above the 200-day simple moving average (bulls trend signal), dominant resistance is in play on both the weekly and daily charts. On top of this, the trend remains to the downside on the weekly scale (just), which means sellers could put in a stonger appearance in this market and attemtp to venture back under the 200-day simple moving average.

GBP/USD Weekly timeframe. Source: TradingView
GBP/USD Daily timeframe. Source: TradingView

USD/CAD Technical Position Ahead of BoC Rate Decision

It was another positive session for the USD/CAD on Tuesday, adding 0.6%, extending Monday’s 0.9% recovery.

The currency pair remains entrenched within an uptrend since May 2021, with September and October markedly gaining traction. Market structure shows price recoiled from support at C$1.3227, together with a 61.8% Fibonacci retracement ratio at C$1.3207. We can also see that price recently penetrated a local trendline resistance, drawn from the high C$1.3978. Overhead, we can see that resistance remains positioned at C$1.3854.

As for the relative strength index (RSI), the indicator’s value rebounded from the 50.00 centreline and forged a higher high in recent trading. We can also see that the indicator, similar to price movement, ruptured a trendline resistance, extended from the high 81.21.

Largely, then, this remains a bullish market, with further buying likely to take aim at the noted resistance at C$1.3854.

USD/CAD Daily timeframe. Source: TradingView

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

About the Author

Aaron Hillcontributor

Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.

Did you find this article useful?

Advertisement