Dovish Talk from BOC Brings Down the “Loonie”
?? Fundamentals
Canadian Dollar futures fell sharply following a cut in the growth forecast from the Bank of Canada (BOC), which some market participants saw as a sign that interest rates may not be raised this year.
On Wednesday, the BOC kept its overnight interest rate steady at 1.00%, but cut its growth forecast to 2% for 2013 and lowered the growth rate for 2012 to 1.9%, as weaker spending by businesses and lower exports slowed growth more than originally forecast.
The BOC also noted that it expects inflation to remain below 2% for an extended period, which is expected to take some of the urgency away from raising interest rates to stem inflationary concerns.
These headwinds for the Canadian economy seemed to have soured bulls on the value of the Loonie vs. their neighbor to the south, as many traders liquidated their long positions after the release of the BOC statement.
The sell-off took the March futures below parity with the U.S. Dollar for the first time in 2-months, and has put in jeopardy the uptrend for the value of the Canadian Dollar that started back in June of last year.
?? Technical Notes
Looking at the daily continuation chart for the Canadian Dollar futures, we notice that the uptrend line drawn from the June 2012 lows have been taken-out, with prices now below this key support point, as well as below the 200-day moving average.
The 14-day RSI is very weak, with a current reading of 31.13. With prices now below parity, the next support point is not seen until the November 16th low of 0.9936. Should this support point fail to hold back “Loonie” bears, we do not see any significant chart support until the 0.9750 area. Near-term resistance is found at 1.0011, but strong resistance is not found until the recent high of 1.0175.
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