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The USDCAD is Declining Before the Next Fed Meeting

11/1/2022 1:34 PM

After hitting two-year highs around 1.3976 in in mid-October, the USD/CAD pair reversed downwards and is now trading in the 1.3560 area.

The Canadian economy is slowing down amid a significant increase in interest rates by the national regulator. According to the latest data, in August, the country's gross domestic product (GDP) grew only by 0.1%, and in the third quarter, it is projected to increase by only 1.6%, which is significantly lower than in the first half of the year (3.1% in the first and 3.3% in the second quarter). Fearing a further slowdown in the economy and the risk of a recession, the Bank of Canada corrected the pace of monetary tightening, raising interest rates last week by only 50.0 basis points instead of 75.0 basis points expected by experts, although it remains at 3.75%, the highest among the leading countries in the world.

Despite the recent negative macroeconomic data, the Canadian dollar shows positive dynamics, which are two main factors. On the one hand, this is the rise in oil prices that has been outlined over the past few weeks, which has become a consequence of the restriction of hydrocarbon production by the participants in the OPEC+ deal and European sanctions on the supply of Russian oil, and on the other hand, the expectation of a slowdown in interest rate growth by the US Federal Reserve. Tomorrow, the US regulator will make another decision on monetary policy, and investors do not doubt that the figure will increase by 75.0 basis points to 4.00%. Still, the department's plans are unclear: officials may hint at a weakening of the "hawkish" rate due to fears creating too serious pressure on the labor and real estate markets, and then the US currency will continue to lose ground against its main competitors.

The trading instrument is testing 1.3560 (Fibonacci correction 23.6%), supported by the lower line of Bollinger Bands, consolidation below which will give the prospect of further decline to 1.3360 (Fibonacci correction 38.2%), 1.3183 (Fibonacci correction 50.0%, Murrey [ 6/8]). The key "bullish" level is the middle line of Bollinger bands 1.3700, the breakout of which will allow quotes to return to the area of ​​1.3916–1.3980 (the area of ​​monthly highs).

Technical indicators do not give a single signal: Bollinger bands are reversing downwards, Stochastic is reversing upwards, and the MACD is decreasing in the positive zone.

Resistance levels: 1.3700, 1.3916, 1.3980. | Support levels: 1.3560, 1.3360, 1.3183.

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