Global macro overview for 29/08/2017

Global macro overview for 29/08/2017:

It looks like at least one of the promises made by Trump during the election campaign might be fulfilled. Newly appointed US Trade Representative Robert Lighthizer has told Congress in May 2017 that President Trump is planning to start talks with Mexico and Canada to modernize the "worst deal in history". After the first round of negotiations, the president Trump himself stated, that the United States can withdraw from NAFTA. The second round of talks is scheduled for 1-5 September in Mexico.

Canada and Mexico are pushing back against Trump's attempts to renegotiate the agreement. The core of the differences between the NAFTA members probably lies in the outsourcing of a good deal of US manufacturing jobs to Mexico and concerns over Canadian commodity imports. This major shift in US trade relations will directly affect both Mexican Peso and Canadian Dollar, which had been enjoying some support recently from diminishing fears that the US could terminate the agreement. In particular, the very difficult situation will be for the Bank of Canada, which announced a new path in monetary policy recently. So far the Canadian economy had adapted to the low oil price economy without any major failures, but the recent developments will make the economy to face completely different and more difficult environment.

If the Bank of Canada will continue to normalize the monetary policy by introducing more interest rate hikes and the oil prices will rebound higher before the end of the year, then CAD should be strengthening gradually, even into next year. The global investors should then keep an eye on three main factors of influence here: low domestic inflation in Canada, NAFTA negotiations and a potential tightening of global financial conditions.

Let's now take a look at the USD/CAD technical picture at the H4 time frame. The price has fallen towards the level of 1.2411 again after the failure to rally over the technical resistance at the level of 1.2534. Breakout below the level of 1.2411 will open the road towards the next important technical support at the level of 1.2124.

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