Global macro overview for 29/10/2018

In line with market expectations, the Central Bank of Canada (Bank of Canada, BoC) decided to raise interest rates by 0.25 p.p. during the summary of the October meeting on monetary policy up to 1.75%, which is the highest level in ten years. However, the market's attention was not focused on the hike itself, but on the content of the monetary policy statement, which was undoubtedly taken away as hawkish.

The most important element was the removal of the record of gradual increases in interest rates, which should be understood that these can take place much faster than before. In addition, BoC draws attention to the stabilization of the housing market, consumer inflation at the level of 2% at least until 2020 (after holiday increases) and gently raises economic forecasts to 2.1% for 2018, 2.1% for 2019 and 1.9% for 2020.

The bank notes that further interest rate hikes will depend on how the economy will react to the existing normalization, while adding that higher rates are necessary to achieve and maintain the inflation target.

"The global economic outlook remains solid. The US economy is particularly strong and is expected to be moderate over the forecast horizon, in line with the projection included in the July Monetary Policy Report (MPR). A new agreement between the US and Mexico and Canada (USMCA) will reduce the uncertainty of trade policy in North America, which has significantly reduced business confidence and investment. However, the trade conflict, especially between the United States and China, has an impact on global economic growth and commodity prices. The volatility of financial markets has returned to the surface and some emerging markets are under pressure, but overall, global financial conditions remain favorable" said the Canadian Bank in the Monetary Policy Statement.

Let's now take a look at the USD/CAD technical picture at the H4 time frame. The market has broken through the technical resistance at the level of 1.3133, but it reversed quickly towards the support at the level of 1.3068. Currently, the price is trying to break out again, but there is no momentum behind this move as the RSI indicator remains weak. Moreover, the market is clearly overbought, so the short-term pullback might continue towards the level of 1.3068 again or even 1.3027.

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