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Bears Return after Another Rally
Economic
Forex
Summary:
Due to the decline in gasoline prices being less than last month, Canada's annualized inflation rate accelerated in October, exceeding expectations and reaching 2.0%. This may reduce the likelihood of the Bank of Canada (BOC) implementing significant interest rate cuts again in December.
Sell
PENDINGUSDCAD
EXP
1.40800
Entry Price
1.38300
TP
1.41790
SL
1.39611 -0.00131 -0.09%
--
Point
PENDING
1.38300
TP
CLOSING
1.40800
Entry Price
1.41790
SL
Fundamentals
In October, inflation in Canada accelerated, with the overall CPI rising by 2.0% for the year, slightly above the anticipated 1.9% and higher than September's 1.6%. The primary driver was a slowdown in the decline of gasoline prices, which fell by 4.0% YoY, compared to a 10.7% drop in September. Excluding gasoline, the CPI for all categories increased by 2.2%, remaining consistent with August and September.
Commodity prices experienced a mild rebound, rising by 0.1% after a YoY decrease of 1.0% in September. The inflation rate for services decreased to 3.6%, marking the smallest increase since January 2022. On a monthly basis, the CPI rose by 0.4% MoM, reversing a similar downward trend observed in the previous month.
Core inflation indictors also exceeded expectations. The median CPI increased from 2.3% YoY to 2.5%, the adjusted CPI rose from 2.4% to 2.6%, and the average CPI climbed from 2.1% to 2.2%. All three figures surpassed general market expectations.
MARKET WATCH: Due to the historic rise in gasoline prices and property taxes, inflation in Canada accelerated in October, with the inflation rate rebounding to 2%. After seasonal adjustments, the inflation rate increased by 0.3% compared to the previous month; while this is not alarming, it certainly does not provide reassurance.
Considering other factors (such as the uptick in real estate activity, the depreciation of the Canadian dollar, and the uncertainty surrounding a potential interest rate cut by the Federal Reserve in December), this October report is likely to diminish calls for the BOC to implement a 50 basis point rate cut, shifting the focus towards a 25 basis point rate cut instead.
Furthermore, although the inflation rate has remained at or below the BOC's target level of 2% for three consecutive months and has stayed within the BOC's desired range of 1%-3% for ten months, policymakers will still need to consider employment and GDP data before the next policy meeting, as these data could significantly influence the anticipated magnitude of any rate cuts.
Technical Analysis
The USDCAD has recently demonstrated impressive performance, even garnering new buying interest last Friday, reaching a four-year high of 1.4105, which has sparked optimism regarding the onset of a new bull market cycle. However, given that both the Relative Strength Index and the Stochastic Oscillator are hovering in the overbought zone, some consolidation may occur, indicating that the current bull market may be overstretched.
Currently, the USDCAD has retraced from the four-year peak of 1.4105, and it is anticipated to rise again. A break above 1.4105 would restore a more significant upward trend, targeting a 61.8% retracement from 1.3841 to 1.3958 at 1.4175. However, a drop below 1.3958 would lead to prolonged consolidation and could potentially result in a further pullback to 1.3841.
Overall, after testing the four-year high of 1.4105, the USDCAD has experienced a pullback, and it is expected that any rebound will not surpass this level, potentially forming a double top pattern that could lead to further downside.
Trading Recommendations
Trading Direction: Sell
Entry Price: 1.4080
Target Price: 1.3830
Stop Loss: 1.4179
Deadline: December 5, 2024 23:55:00
Support: 1.3958, 1.3931, 1.3879
Resistance: 1.4037, 1.4075, 1.4105
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