BOC Rate Cut Bets Grow as Loonie Stands Firm

12 Agu

• R2 1.3947 – 5 August/2024 high – Strong
  
• R1 1.3900 – Figure – Medium
  
• S1 1.3718 – 9 August low – Medium
  
• S2 1.3700 – 19 July low – Medium
  

We remain in the thick of thin summer trade, something that must be taken into consideration when reflecting on price action. The market has done a good job overall recovering from last Monday’s panic mess and the question on everyone’s mind is whether or not all of that doom and gloom is behind us or just the start to another intense wave of risk off flow.

The Canadian Dollar held up rather well on Friday despite the discouraging Canada employment report. The local rate market has now begun to price in the 10% possibility for an even bigger 50 basis point rate cut at the Bank of Canada's next meeting in early September. Key standouts on Monday’s calendar come from German wholesale prices, Canada building permits, US consumer inflation expectations, and the US monthly budget statement.

A sustained hold above 1.3000 over the past several months signals an end to a period of longer-term bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area, with a break to open a retest of the 2020 high just ahead of 1.4700. Setbacks should be very well supported down into the 1.3000 area.

Exclusive FX research from LMAX Group Market Strategist, Joel Kruger