USD CAD Up Ahead of Bank of Canada Announcement

The USD CAD is trading better ahead of this morning’s Bank of Canada announcement at 8:00am CT. The BoC is expected to leave interest rates at 0.25 percent.

The USD CAD is trading better ahead of this morning’s Bank of Canada announcement at 8:00am CT. The BoC is expected to leave interest rates at 0.25 percent. It should also reiterate its stance to leave rates historically low until at least July 2010. This statement will be the key to the market’s movement today. If they move up the date then the Canadian Dollar should rally. Following last week’s robust increase in the number of jobs created last month, the BoC is no longer concerned about stagnation in the economy, but it is still worried about the negative effect a high priced currency will have on exports. The BoC monetary committee is going to have to be careful in how they word the statement because they don’t want to appear to bullish on the economy.

The EUR USD is trading lower this morning following a weaker than expected German Industrial Production Report. This report is taking out some of the steam in the market following comments from Bernanke which suggested the Fed was not yet ready to begin raising interest rates. The German report which showed industrial output fell 1.8% in October was a surprise but remember European Central Bank President Trichet has been warning that the economic recovery will be bumpy and rough.

Technically overbought conditions are once again helping the USD JPY give back gains following a huge surge to the upside last Friday following the release of the better than expected U.S. unemployment rate. The Dollar is paring gains versus the Yen following comments yesterday by Fed Chairman Bernanke who reiterated the Fed’s stance that interest rates would continue to remain low for a “prolonged period of time”. A sharp drop in equities could provide support for the U.S. Dollar versus the Yen if traders decide to unwind carry trade positions.

A report showing that U.K. house prices rose for the firth consecutive month was not enough to ignite buying interest in the GBP USD overnight, sending the market lower ahead of the New York opening. Industrial Production was unchanged in October, reminding investors that the economy was still in a weakened state. Manufacturing output was also flat. Traders are now concerned that the economy will not show a strong improvement in GDP during the 4th quarter. Further complicating the possibility of a recovery is the threat by the U.K. government to raise taxes and trim spending.

The USD CHF is trading higher overnight. The breakout over the last swing top at 1.0222 turned the main trend up, but the market rejected this area late yesterday after buying dried up. Swiss France traders are also being influenced by the movement in the gold market. A recovery in gold could limit gains in the USD CHF. On December 10th the Swiss National Bank is expected to leave its benchmark interest rate unchanged and offer clarity as to its future monetary policy plans. Most traders expect the SNB to discuss its concerns about deflation and the possibility of another round of intervention if the Swiss Franc appreciates too much against the Euro.

The recent spike in the AUD USD took its toll on exports as the current account deficit widened on a drop in exports. It is estimated that the strong Aussie shaved as much as 1.8% off the overall economic growth. Signs of weakness in this currency continue to prevail despite last week’s rate hike by the Reserve Bank of Australia. Comments from RBA Governor Stevens regarding the curtailing of future interest rate hikes is the biggest factor weighing on the Aussie. Coupled with the possibility of a rate hike by the Fed sooner than expected, should limit gains. A drop in demand for higher yielding assets could send this market sharply lower over the near-term.

The trend is down in the NZD USD. Pressure should continue on this currency pair until there is an increase in demand for higher yielding assets. Tomorrow the Reserve Bank of New Zealand meets to discuss monetary policy. Expect it to leave interest rates unchanged at 2.5% until at least the Third Quarter 2010. Unemployment and a drop in exports should help to curtail gains in the economy.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: