We have had a small bout of USD/CAD weakness despite the greenback gaining ground against most of the other majors (EUR, JPY, NZD and AUD).
Oil has been pulling off very low levels with OPEC pledging to curb production more to offset any more weakness due to the coronavirus. The fact that the market (rumors) reported a cut of 1mln bpd and OPEC only delivered another 600K did disappoint but the rate in which the virus has spread seems to be slowing so WTI has seen some relief.
The issues with Canadian growth look set to continue and I don't really see this inflation (CPI YoY Jan 2.4% vs exp 2.3% prev 2.2%) causing too much bother if they do cut again. Inflation is a backward looking reading and was based on prices before January due to its lagging calculation.
With this in mind could the recent pullback in USD/CAD be a retracement?
Maybe so. Let's look at the technical levels.
Looking at the chart below, USD/CAD is retesting the internal trendline at the moment. The price could be supported here or lower down at the congestion level near 1.3175-80.
If the cut probability does rise we could see a move up to the wave high once again. Next week Friday we will see the latest GDP number and it is forecast to come in slightly lower (0.01%). If it is materially worse than expectations we may see some CAD weakness. But as always it could surprise to the upside. There is no such thing as certainty in this market.
Markets today are looking like they have forgotten about the risk that the coronavirus may still carry. USD/JPY is one of the best performing FX pairs, Gold has sold off slightly and equities are in the green. All signs that trades may have shrugged of fears for now.
Overnight it was confirmed that there was another death outside China and this time it was in densely populated Hong Kong. As a precautionary measure China have also shut down casinos in Macau for another 3 months leading gaming shares to sell of in the country.
Are the markets getting ahead of themselves?
Well with these themes sometimes the moves can be short lived. Until there is another piece of news insinuating some kind of doomsday scenario we may consolidate slightly at these levels. The key thing to do here is keep headline watching.
Oil and the coronavirus
There have been some reports that the OPEC+ group are looking to meet before March to discuss the state of the market and decided whether an emergency cut is needed. Russia have come out and said they think they will meet with the likes of Saudi Arabia before March but crucially did not confirm if they are willing to deeping their cuts.
Oil dipped below $50/bbl yesterday and this morning has consolidated just above. Again we will need confirmation from Saudi Arabia and some of the other large OPEC nations before believing the rumours.
Although there may be an RSI divergence on the chart do not be fooled by technical patterns. Oil is not out of the woods yet wait for confirmation about an extension to cuts or some more news that the coronavirus has been contained.
Copper and Oil have both taken a massive hit over the past 2 weeks as the fallout from the coronavirus intensifies. Just today the CL1 futures contract (WTI futures) dipped below $50/bbl.
The issue in China is having a serious impact on financial markets as the Shanghai Comp. opened up 8% lower after being closed for a week due to the Chinese New Year celebrations or lack of.
This issue does provide opportunity for financial traders however. Equities markets have been selling off world wide. But healthcare stock have surged and airline shares have tanked. Keep an eye on good opportunities and strike when the time is right.
These events however terrible they are provide good value points in strong markets and give more opportunities to short weak ones.
I hope the situation becomes better as it is horrible to watch people suffer.
How to trade the Bank of England Meeting
The Bank of England (BoE) are set to announce their latest interest rate decision on Thursday.
Now at the moment the market are pricing in a 50/50 chance of a rate cut of 25bps.
Haskel and Saunders votes for a cut last time out. There are some analysts who believe Gertjan Vlieghe will join the dovish camp.
The UK's Chancellor Sajid Javid is set to deliver the latest UK fiscal budget in March. The could possibly wait until then for a decision.
GBP/USD is trading around 1.30 and as you can see from the chart below the trendline on the 4-hour chart has just broken. On the downside the next support is 1.2909 and the next resistance is 1.3039. Beyond that, the resistance above stands at 1.3094.
Look at technical analysis like a quantitative tool.
There is no way of telling where the market is going with technical analysis in my opinion but there are signs and patterns that can give you clues.
If an important price level breaks (with good volume) or a significant trend breaks this can give you an idea about what can happen with future price. Although, it is important to remember that price is governed by buyers and sellers not technical levels.
Back test your theories and produce a report of the success rate. Then maybe put the system to test with a small amount of money or a demo account before taking it live.
In today's climate randomness is common with Trump around so managing risk is also something that should be tested but that isn't to say it makes trading harder. The moves carry further as algo reactions are becoming extended.
Fundamentals vs technicals has been an argument for ages and I say throw it out and use both!
About the blog
Tradervidz will be offering free market analysis articles in the macro-asset markets - FX based for the most part.