Yesterday, the focus fell on a few major economic and political developments. One being the BoE’s monetary policy report and the other — the China-US trade tensions. Canadian data will be on the lookout for today.
Two MPC Members Want A Cut
The Bank of England kept its interest rate the same as expected, at +0.75%, but the interesting news was that two of the 9 members of the Monetary Policy Committee decided to vote in favour of a reduction in the interest rate. This made the markets worry, as the justification from those two members was that an immediate cut is necessary in order to keep the economy afloat. The two dovish members were Jonathan Haskel and Michael Saunders, who advocated that cheaper borrowing costs are something what the UK economy needs right now to battle lack of growth. As stated by the Bank, although the uncertainty surrounding a no-deal Brexit has diminished slightly, still, they see problems with the GDP growth in the near future. And if growth and inflation do not stabilise to required levels, the BoE will be forced to cut rates again. In that scenario, if the MPC would decide to reduce the rate by 25bps, it would bring that number back to the level seen between the end of 2017 and mid-2018, when the rate was at 0.50%. All this uncertainty probably won’t have a positive effect on the British currency, which means that GBP might stay in limbo, or it could feel slight bearish pressure.
China-US Trade Mess
The other big news that hit wires yesterday was the announcement coming out from the China-US trade negotiations. The two sides decided to rollback on some of the tariffs imposed on each other before the end of this year. But because the whole process is going to be divided into several phases, the first phase should be signed off around the beginning of December. If nothing changes, of course, which is quite possible, as we have seen this happening several times already. The first phase is believed to include the US tariffs scheduled for December 15th, which mainly are for Chinese goods, such as toys, laptops and mobile phones. From the Chinese side, Beijing could consider lifting their restrictions on US poultry and eggs.
Most equity markets across the globe took the news very positively and were seen trading in the green. The US indices managed to hit their new all-time highs, but then retraced slightly before the end of the trading session. This was due to a few headlines showing up, stating that the decision to rollback some of the tariffs by the White House in phase one is receiving criticism from certain Republicans, and also from certain countries. Although all the “rollback news” sounded quite appealing to the equity markets, let’s not forget that, in regards to this ongoing issue, goods news tend to come and go. A good example was that it was reported that China believes that all the tariffs might get lifted after all the phases are completed, whereas the US believes that after these phases, only a portion of the tariffs will get lifted. If so, this could continue putting pressure on the stock market. This morning, the Asian markets were slightly mixed.
USD/CHF — Technical Outlook
Yesterday, USD/CHF had a great run to the upside, which helped it to break and stay above its short-term downside resistance line taken from the high of October 3rd. The pair ended up testing the 0.9975 barrier, from which it retraced slightly lower. For now, everything seems to look positive for the near-term outlook, but in order to get comfortable with higher areas, a break of yesterday’s high is needed, hence why we will stay cautiously-bullish for now.
If the rate accelerates to the upside again and breaks above the previously-mentioned 0.9975 barrier, this would confirm a forthcoming higher high and more buyers might be joining into the action. This could send the pair to the 0.9996 obstacle, a break of which may set the stage for a test of the 1.0028 level, marked by the highest point of October.
Alternatively, in order to examine the downside again, a rate-drop below the aforementioned downside line and a slide below the 0.9910 hurdle, marked by yesterday’s low, could spook all the bulls from the field temporarily. This may allow the bears to take control and drive USD/CHF to the 0.9895 obstacle, a break of which may lead the pair to the 0.9853 level. That level is marked by the lows of November 1st and 4th.
EUR/CAD — Technical Outlook
Overall, EUR/CAD continues to trade nicely inside a rising channel pattern. But recently, after hitting the upper bound of it, the pair started sliding, which led to a fall below all of its EMAs and now seems to be heading towards the lower side of that channel. For now, we will stay cautiously-bearish inside the rising channel formation and target the lower side of it.
Even if the pair drifts slightly to the upside, but struggles to overcome all of its EMAs on the 4-hour chart, the bears could pick up on that and push the rate back down towards the 1.4543 hurdle, marked by yesterday’s low. If this time that area fails to provide descent support, its break may lead to the 1.4505 level, which is the inside swing high of October 28th, or to the previously-discussed lower side of the channel.
On the other hand, if the rate climbs back above all of its EMAs and pushes above the 1.4613 barrier, marked by the high of November 6th, this may attract more bulls into the field. Such a move could clear the path to the 1.4645 obstacle, a break of which might lead to the 1.4693 area, or even to the 1.4720 zone, marked by the highs of November 4th and October 31st respectively. Not far from the last mentioned hurdle is the upper bound of the rising channel, which could also provide some resistance for EUR/CAD.
As for the rest of today’s events
Canada’s employment report for October is due to be released. The unemployment rate is forecast to have remained unchanged at 5.5%, while the net change in employment is anticipated to show that jobs growth slowed to 20k from 53.7k in September. At its latest meeting, the BoC kept interest rates unchanged at +1.75%, but the statement accompanying the decision had a more dovish flavor than previously, with BoC Governor Poloz saying that they discussed whether the downside risks were significant enough for an insurance cut, but the decided that they were not. Thus, a disappointing employment report is likely to increase speculation with regards to an easing action by this Bank soon. Canada’s housing starts for October and building permits for September are also coming out, while from the US, we get the preliminary UoM consumer sentiment index for November, which is expected to have increased to 96.0 from 95.5.
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Originally published at https://www.jfdbank.com on November 8, 2019.