Global macro overview for 10/01/2019

In line with market expectations, the Bank of Canada (BoC) decided to keep interest rates unchanged at the January meeting. In a monetary statement published after the decision the BoC said:

"The Bank of Canada maintained its target in the interest rate on one-day deposits at 1.75% percent. The bank rate is 2 percent, and the interest rate on deposits is 1.5% "

Global economic expansion is still moderate, with a slowdown forecasting to 3.4 percent in 2019 from 3.7 percent in 2018. In particular, growth in the United States remains stable, but it is expected that by 2019 it will slow down to a more balanced pace. More and more, however, indicates that the trade conflict between the US and China affects the global demand and prices of goods.

"World crude oil reference prices are around 25 percent lower than assumed in the October Monetary Policy Report (MPR). Lower prices primarily reflect the sustained increase in oil supply in the US, and recently also increased concerns about global demand. These fears among market participants were also reflected in the bond and equity markets, " comments the Bank of Canada.

The decline in world oil prices has a significant impact on Canada's GDP growth prospects, which results in poorer trade conditions and lower national income. Transport constraints and growing production also contributed to increasing oil stocks in the west and putting even greater pressure on lowering Canadian reference prices. While in recent weeks differences in prices have decreased after the announcement of mandatory cuts in production in Alberta, it is expected that investments in the Canadian oil sector will continue to weaken.

Let's now take a look at the USD/CAD technical picture at the H4 time frame. Despite declines in world oil markets that have a negative impact on the Canadian economy's forecasts, the CAD exchange rate strengthened, gaining USD sixth in a row. The market has made a new low at the level of 1.3178 and the price bounced towards the technical resistance at the level of 1.3218. Currently, the market is trading just slightly above the level of 1.3218, but the conditions are extremely oversold despite the weak and negative momentum. The next technical resistance is seen at the level of 1.3267.

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