Equities Trade in the Green, GBP Continues to Rally, BoC Stands Pat

Stocks Gain on Easing Political Worries and US-China Optimism

The dollar traded lower against all but one of the other G10 currencies on Wednesday and during the Asian morning Thursday. It underperformed the most against GBP, NOK CAD and SEK in that order, while it managed to eke out some gains only against JPY.

UK MPs Approve Extension Bill and Reject Election Motion

Back to the currencies, the pound continued trading in a rally mode yesterday, outperforming all of its major counterparts. It’s been another bright day for GBP-bulls, who decided to extend Tuesday’s rally after Labour Leader Jeremy Corbyn said that, although he still wants a general election, he will not support one until the threat of a no-deal Brexit has been taken off the table. Indeed, after passing a bill that would force the government to request a new Brexit delay, at least until January 31 st, lawmakers rejected Johnson’s motion for general elections just two weeks ahead of the current exit deadline.

EUR/GBP — Technical Outlook

EUR/GBP continues to drift lower, while trading below a short-term tentative downside resistance line taken from the high of August 12 th. Yesterday, we saw the rate falling all the way to the psychological 0.9000 area, which keeps on holding the pair from moving lower. Given this week’s strong decline, there could be a small correction back up a bit, but as long as EUR/GBP stays below the tentative downside line, we remain bearish, at least in the short run.

BoC Stands Pat, Maintains Neutral Stance

We also had a BoC monetary policy decision yesterday. As it was widely anticipated, the Bank decided to keep interest rates unchanged at 1.75%. In the statement accompanying the decision, officials noted that the US-China trade conflict has escalated, weighing more heavily on global economic momentum than the Bank has projected in July. They also said that some of the strength in Canadian growth for Q2 is expected to be temporary, and that the stronger-than-expected CPI for July was also largely due to temporary factors. Nevertheless, they maintained their neutral stance with regard to interest rates, reiterating that the current degree of monetary policy stimulus remains appropriate.

USD/CAD — Technical Outlook

USD/CAD took a strong hit yesterday, after the BoC appeared less dovish than expected. This helped boost the Canadian dollar against most of its major counterparts. From the technical side, we can see that USD/CAD has broken below, not only the lower side of the range, at 1.3250, but also fell below the 1.3225 hurdle, which is the low of August 27 th. Given the strong selling we saw yesterday, there is a possibility of seeing some more downside, at least in the short run. This idea is also supported by our oscillators, the RSI and the MACD. The RSI is currently below 50 and the MACD is pointing lower, while sitting below zero and its trigger line. This is why for now, we will stay somewhat bearish.

As for Today’s Events

Today, we have another central bank deciding on monetary policy: The Riksbank. At its latest meeting, in early July, the world’s oldest central bank decided to keep interest rates unchanged at -0.25%, and maintained the view that the repo rate “will be increased again towards the end of the year or at the beginning of next year.”

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
JFD

JFD

JFD is a leading Group of Companies offering financial and investment services and activities.