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Pending Decisions of the Bank of Canada on Monetary Policy

1/25/2023 11:56 AM

At the end of last week, the USD/CAD pair fell to the 1.3360 area (Fibonacci retracement 38.2%), where it is currently trading.

Investors remain calm ahead of the meeting of the Bank of Canada with an interest rate decision, which is due to take place today. It is expected that against the backdrop of easing inflationary pressures (the Consumer Price Index fell again to 6.3% in December), the Canadian regulator will slow down the increase in the value to 25 basis points and bring it to 4.50%, which is a fifteen-year high. Comments from the Bank's officials, who may hint at a temporary suspension of the monetary policy tightening cycle to assess the consequences of measures already taken, will be of greatest interest to investors. In this case, the Canadian currency may be under pressure.

The fundamental picture remains favorable for the Canadian dollar, primarily due to the rise in commodity prices, stimulated by the recovery of the Chinese economy after the lifting of quarantine restrictions. As for the American currency, it is under pressure after the publication of the January data on business activity in the US: the Manufacturing PMI corrected from 46.2 points to 46.8 points, and the Services PMI rose from 44.7 points to 46.6 point, while remaining in the stagnation zone.

The downtrend continues, as evidenced by the downward reversal of Bollinger Bands and the stabilization of MACD in the negative zone. The price tends to break below the support zone 1.3360–1.3305 (Fibonacci retracement 38.2%, Murrey level [5/8]). If successful, further downside targets will be 1.3183 (Fibonacci retracement 50.0%, Murrey level [4/8]) and 1.3060 (Fibonacci retracement 61.8%, Murrey level [3/8]). The center line of Bollinger Bands at 1.3455 is seen as the key level for the "bulls". Consolidation above it will give the prospect of resumption of growth to the levels of 1.3550 (Fibonacci retracement 23.6%, Murrey level [7/8]) and 1.3671 (Murrey level [8/8]); however, this variant of quotes movement is less likely.

Resistance levels: 1.3455, 1.3550, 1.3671. | Support levels:  1.3305, 1.3183, 1.3060.

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