The key event of yesterday is an increase in the interest rate by the Canadian regulator. It can't be said that such a decision was sensational. In general, the market expected the Bank of Canada to continue to tighten the parameters of monetary policy. It's true that almost no one expected Stephen Poloz to do so at such a hasty pace. Last July 12, the Central Bank raised the rate for the first time in seven years. The next decision to do so again took only two months.
Most experts considered the September meeting "uneventful" and hoped only for the "hawkish" rhetoric of the head of the Canadian regulator. Therefore, as soon as the outcome of the meeting became known, the USDCAD pair collapsed by almost three hundred points with a subsequent corrective pullback. It should be noted that in July, there was almost a similar reaction. The pair fell from the 29th to the 26th figure. The further decrease was given to bears of the pair with considerable labor, since the initial downward impulse quickly died away.
At the moment, the price drop has also actually stopped. The pair froze in the flat at the border of the 21st figure. This behavior of the market is understandable. On one hand, sales which were at two-year lows (the last time the "loonie" was at current levels was in June 2015) look risky, but, on the other hand, the fundamental background does not have any long positions. Thus, traders got into a somewhat stalemate situation, while waiting for information drivers.
Here, it is also necessary to add that the decision to raise the rate was accompanied by a fairly transparent hint. The phrase that "... further monetary policy decisions are not determined in advance and will be taken based on incoming economic data" indicates the willingness of the regulator to continue to follow the specified course. And after such a veiled announcement, all the key economic parameters of the country will be considered exclusively through the prism of the probability of a rate hike.
The long wait is not necessary. Tomorrow, Canada will publish the basic data on the labor market. According to preliminary estimates of experts, we are waiting for very positive figures. The level of Canadian unemployment in June and July gradually decreased, reaching 6.3% (the lowest level since 2008). In August, unemployment should remain on the previous values, but the number of employees will be about 10 thousand. In the context of the meeting of the Bank of Canada yesterday, even the most insignificant deviations from the forecast, which are for the better, will have a significant support for the Canadian currency. Such dynamics will once again give the bear a pair of strength, as other key indicators (on inflation and GDP growth of the country) were published relatively recently. In the near future, important news on the pair is not expected.
However, the impact on the USDCAD pair is not limited to domestic macroeconomic statistics in Canada. An important role is played by the oil market. At the time of writing, the barrel of Brent crude oil held above $ 54, demonstrating a gradual increase. The demand for "black gold" is explained by the restoration of the work of many American refineries in the US after the most powerful hurricane "Harvey". Passing in the Gulf of Mexico, the cyclone disabled more than a quarter of the country's refineries, which significantly affected the dynamics of the oil market.
And although quotations have been growing for several days in a row, today oil traders will closely monitor news from the US. It's about crude oil reserves, according to the Ministry of Energy. Since the end of June, this indicator shows a significant decline. However, this week, the resumption of growth is expected. If, contrary to forecasts, stocks will still decline, commodity currencies will receive some support including the Canadian dollar.
From the technical point of view, the USDCAD pair continues to demonstrate a strong downward movement, despite yesterday's correction. This is confirmed by the price on the daily chart on the bottom line of the Bollinger Bands indicator, showing the extended channel. A bearish mood has also confirmed by the formed signal of indicator Ichimoku Kinko Hyo. In addition, the MACD indicator is in the oversold zone, which also indicates the priority of the downward movement. The level of support is the minimum price for September (and the last two years) or the level of 1.2135. And the resistance level is the Tenkan-sen line of the Ichimoku Kinko Hyo indicator with the price of 1.2400.
Thus, the fundamental and technical picture of the pair suggests that the price has a tendency to move towards the bottom of the 20th figure. So, from the current trend, you can open short positions. Positive data on Canada's labor market and the further growth of oil quotations will only accelerate the process of price reduction. However, in order to secure the pair of bears on the 19th figure, the pair needs more.