USD/CAD: Profit taken on short position after hawkish comments from BoC
Macroeconomic overview: Bank of Canada’s Senior Deputy Governor Carolyn Wilkins said first-quarter growth was "pretty impressive," while there were encouraging signs growth was broadening. She added: “As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required.”
Wilkins said Canada had largely adjusted to a drop in oil prices that prompted the bank to cut rates twice in 2015, to 0.50%, to bolster the economy, which slipped into a brief recession.
Wilkins acknowledged tax and trade policies in the United States will likely remain an important uncertainty in the bank's outlook and it will be difficult to gauge the impact without more information.
Inflation is currently at 1.6%, thanks in part to slack in the economy, Wilkins said. She noted other indicators also point to ongoing spare capacity, including only moderate growth in wages.
The speech's hawkish tone is the first acknowledgement from the bank that the next move is likely to be a hike.
The bank makes its next rate decision on July 12. Markets were pricing in a 52% chance of a hike by the end of 2017 following Wilkins' speech.
The CAD climbed against the USD yesterday after hawkish comments from BoC.
Technical analysis: The USD/CAD closed below 76.4% fibo of April-May rise and is targeting full retracement at 1.3223. Some corrective move is likely near this level, but long-term outlook remains bearish.
Short-term signal: Profit taken on USD/CAD short position and waiting for tomorrow’s FOMC decision now.
Long-term outlook: Bearish
GBP/USD: British inflation jumped above expectations
Macroeconomic overview: British inflation jumped to 2.9% yoy, which is the highest level since June 2013. That was above the median forecast for a rise of 2.7%.
Core inflation, excluding oil prices and other volatile components such as food, rose to 2.6% compared with market expectations of 2.4%.
The Office for National Statistics said one of the main drivers for inflation in May was the increased cost of holidays abroad for British tourists who have to pay more their euros and dollars. Another big push on prices came from computer games and equipment, which are typically imported and therefore reflect the diminished buying power of sterling since the Brexit vote.
Data due to be released on Wednesday is likely to show basic pay rose by an annual 2.0% in the three months to April.
Inflation has picked up speed broadly around the world but in Britain there is extra pressure from the fall in sterling, contributing to a sharp slowdown in British economic growth since the start of this year.
Credit card firm Visa said on Monday it saw the first annual fall in spending by consumers in nearly four years in May.
Despite the sharp rise in prices, the Bank of England is widely expected to keep interest rates at their record low of 0.25% when it announces its latest monetary policy decision on Thursday. The BoE has said it will tolerate inflation above its target of 2% because so far there has been no knock-on effect on pay which could generate a longer-lasting inflation problem.
The central bank has previously said it only expected inflation to reach the kind of levels it has now hit at the end of this year.
Data on prices paid by factories suggested inflationary pressures in the pipeline might be easing. Input prices fell by 1.3% mom in May, taking the yearly rate of price growth down to 11.6% from a downwardly revised 15.6% in April. Growth in prices charged by factories held steady at an annual 3.6%.
The GBP/USD steadied around 1.2700 after UK inflation numbers came in above forecast.
Technical analysis: The GBP/USD lifts away from Asia’s 1.2642 low, which was slightly higher than Monday’s 1.2640 and Friday’s 1.2636 lows. The technical outlook remains bearish after Friday’s fall. Slow stochs are heading south and have room to run. The nearest support level is 61.8% fibo of April-May rise at 1.2625.
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS:
FOREX - MAJOR CROSSES:
How to read these tables?
1. Support/Resistance - three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)
5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
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