CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Canadian CPI lower than expected. Are the BOC rate hikes working?

Canada’s August CPI released earlier today was 7% YoY vs an estimate of 7.3% YoY and a July reading of 7.6% YoY.  This was the lowest reading since April after CPI peaked in June at 8.1%.  The core CPI print was 5.8% YoY vs an expectation of 6.2% YoY and a prior reading of 6.1% YoY. This was also the lowest reading since April after peaking in June at 6.2% YoY.  Does this mean that the Bank of Canada’s rate hikes are working?  After the July meeting in which the BOC surprised markets by hiking rates 100bps, it followed up with another 75bps hike at the September meeting.  That adds up to a 1.75% increase in the overnight rate in two months, bringing the current rate to 3.25%! This is the highest level since 2008! However, although the exceptional rate hikes may be working to bring down inflation, the BOC must be careful as the Canadian economy has lost 113,500 jobs over the last 3 months, with an Unemployment Rate at 5.4%, its highest level in 7 months.

What is inflation?

Yesterday we looked at the USD/CAD from a weekly timeframe and noted all the potential resistance above. On a daily timeframe, we pointed out the inverted hammer.  However, with today’s weaker CPI data from Canada, there has been no follow through on the downside…yet.  The pair still must get through tomorrow’s FOMC meeting, which should set the tone for US Dollar pairs.

Everything you need to know about the Federal Reserve

As for EUR/CAD, prices have been moving lower since July 21st, 2020 when they peaked at 1.5979.  However, the momentum picked up steam after price broke below 1.4100 on March 2nd as it became apparent that the BOC would hike rates at a faster rate than the ECB.  EUR/CAD began moving in a downward sloping channel and reached its lowest level since 2013 on August 25th at 1.2877, which was also the bottom trendline of the channel.  Since then, EUR/CAD has bounced and is currently testing the top trendline of the channel and horizontal resistance near 1.3300.

Source: Tradingview, Stone X

 

Trade EUR/CAD now: Login or Open a new account!

• 
Open an account in the UK
• 
Open an account in Australia
• 
Open an account in Singapore

 

On a 240-minute timeframe, EUR/CAD appears that it may be trying to carve out an Inverted Head and Shoulders pattern.  The target for this pattern is the height from the neckline to the head, added to the breakout point.  In this case the target is near 1.3660.  However, if price is to reach the target, it must first pass through horizontal resistance at 1.3390 and then the 38.2% Fibonacci retracement level from the highs of December 20th, 2021 to the lows of August 15th at 1.3553.  Above there, horizontal resistance crosses at 1.3711.  However, it this proves to be a false breakout above the channel, horizontal support crosses at 1.3292, then the lows from September 6th at 1.2979.  Below there, EUR/CAD can move to the lows of August 25th at 1.2857.

Source: Tradingview, Stone X

CPI for August out of Canada was lower than expected.  As a result, EUR/CAD is trading higher on the day.  Will the pair continue to move higher?  It may depend on the September Employment Change for Canada on October 7th.  If the employment data continues to worsen, the BOC may be forced to lower the pace of interest rate increases, which could give a lift to the Canadian Dollar.

Learn more about forex trading opportunities.



StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024