FX market cautious ahead of BoC rate decision

Market continues to trade cautiously in range with bias mildly on the dollar’s side. Consumer confidence in Japan dropped slightly to from 49.9 to 47.3 in June, but market has little reaction to it. The same situation may be seen with Germany WPI and UK trade balance to be released later today. Technically speaking, volatility should continue to contract after dollar’s short term sharp decline has completed with climax selling last Friday. Consolidation may continue till US Trade Balance tomorrow.

Bank of Canada will be announcing rate decision today after it’s two day monetary policy meeting. Opinion is a bit mixed with favor to keeping rate unchanged at 4.25%. After 25bp rate hike in May BoC Governor David Dodge has commented that he would pass on a move in July to better assess the economic situation and resume the cycle in September. Then came the strong inflation and retail sales data and Dodge came in and said their predications of price and economic growth remains “reasonable.” With USDCAD stuck in range between 1.0930 and 1.1288 for more than 2 months, a breakout could happen today after getting a clear signal from BoC.


Daily Pivots: (S1) 1.2242; (P) 1.2282; (R1) 1.2345

USD/CHF’s rebound from 1.2181 has reached as high as 1.2323 before turning sideway. At this point, intraday bias remains on the upside as long as USD/CHF stays above 1.2283 minor support and further rebound cannot be ruled out. Below 1.2283 will suggest an intraday top is formed already but pull back should be contained above 1.2220 support and bring another rise before completing the correction.

As discussed before, USD/CHF’s decline from 1.2527 has completed at 1.2182 with bullish convergence in 4 hours MACD and RSI. rebound has reached initial target of 38.2% retracement of 1.2527 to 1.2182 at 1.2314 as expected already. Even though further corrective trading might continue, we’d expect upside to be limited well below 1.2398 cluster resistance (61.8% retracement of 1.2527 to 1.2182 at 1.2395) and bring decline resumption.

In a bigger picture, corrective rise from 1.1919 has completed at 1.2527, ahead of mentioned resistance of 1.2601/37. Further decline is in favor towards rising trend line from 1.1919 to 1.2015 (now at 1.2163) and break of this trend line will add much credence to the case that the medium term down trend from 1.3283 has resumed for a test of 1.1919 first.

Break of 1.1919 will encourage further fall to next cluster support of 1.1712/15 (78.6% retracement of 1.1288 to 1.3283 at 1.1715 and 61.8% projection of 1.3238 to 1.1919 from 1.2527 at 1.1712). But with the possibility of completion of a five wave structure in mind, we’ll pay special attention to sign of loss of momentum as USD/CHF approaches this cluster support that could turn USD/CHF into sizeable consolidation or correction before resumption the medium term down trend. This view will be seriously reconsidered in case of violation of 1.2398 cluster resistance.

Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.

USD/CHF 4 Hours Chart - Learn Forex, Trade Forex, Forex News, Forex Headlines

Shing-Ip Tsui (Shing) is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders, providing insightful contents to individual forex traders. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.