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Oct 26, 2018

BOC RAISES RATES WHILE GLOBAL DOWNSIDE RISKS INCREASE

BOC HIKES RATES

The Bank of Canada hiked interest rates by 0.25 per cent this week as widely expected, bringing the nations overall rate of interest to 1.75 per cent. The Canadian dollar strengthened broadly against the euro, US dollar, British pound currencies immediately after the much-anticipated rate increase. The hike brings the Canadian interest rate to levels not seen since December 2008 and marks the third rate hike this week. Policymakers said that more hikes would be needed to keep domestic inflation close to two per cent, as growth remained strong and the new USMCA agreement would reduce economic uncertainty.

  • The USDCAD pair remains bearish while trading below the 1.3123 level key support is found at the 1.2990 and 1.2880 levels.

  • If the USDCAD pair trades above the 1.3123 level, key resistance is found at the 1.3220 and 1.3290 levels.

STOCKS ERODE GAIN

Risk-off trading sentiment returned once again this week to financial markets as fears over slowing global growth, Italian political woes and mixed US corporate earnings spooked investors. The Dow Jones and the S&P 500 index’s erased the previous ten months trading gains, while the Nasdaq officially fell into correction territory for 2018.  Asian equity markets also felt the brunt of the selling, causing the Nikkei225 index to fall to a six-month trough and Chinese stocks to resume their recent downtrend. Much weaker than expected German economic data and a slump in monthly US home sales also increased fears that developed economies are now starting to see a slowdown in growth.

  • The USDJPY is bearish while trading below the 111.90 level, key support is now found at the 111.59 and 110.10 levels.

  • If the USDJPY pair moves above the 111.90 level, key resistance is found at the 112.45 and 113.25 levels.

EURO CURRENCY HIT

The euro currency fell to its lowest trading level against the US dollar since August this year, after German Manufacturing growth cratered to a twenty-nine month low. The EURUSD pair fell below the 1.1400 level as the German Manufacturing PMI slumped to 52.3 during the month of October. The single currency was also pressured lower by dovish comments from ECB President Mario Draghi, who acknowledged recent softer than expected EU economic data and growing global downside risks stemming from emerging markets and protectionists policies.

  • The EURUSD pair is bearish while trading below the 1.1550 level, further losses towards the 1.1300 and 1.1220 levels remains possible.

  • If the EURUSD pair trades above the 1.1550 level, further gains towards the 1.1600 and 1.1650 resistance levels then seems possible.

STERLING UNIMPRESSED

The British pound fell sharply lower against the US dollar this week, as EU and UK talks ended with both parties still unable to agree on the term of the United Kingdoms departure from the EU. The British pound tumbled towards the 1.2800 support level against the US Dollar as British Prime Minister Theresa May fell short of finding a workable solution with the EU, to the Northern Ireland border issue inside her main Brexit divorce bill. Sterling also started to shed early week gains as United Kingdom businesses ratcheted-up plans for a Brexit no-deal scenario.

  • The GBPUSD pair is strongly bearish while trading below the 1.2921 level, key support is found at the 1.2800 and 1.2740 levels.

  • If the GBPUSD pair trades above the 1.3045 level, further gains towards the 1.3100 and 1.3155 levels remains possible.

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