The December Canadian Dollar sold off sharply on Tuesday after Bank of Canada Governor Mark Carney suggested he may reduce his economic outlook and put off an expected interest rate hike. Carney weakened the currency when he commented that his quarterly economic forecast next week will reflect a prolonged global recovery. Speculators tend to like them short and sweet.
Investors had been supporting the Canadian Dollar on the notion that the economy was strong enough to warrant a possible rate hike, but weaker crude oil prices and concerns about the global economy because of Europe and China may have caused Carney to soften his outlook.
Investors are paring positions in the Canadian Dollar ahead of next week’s central bank meeting. Carney was quoted as saying that the Bank of Canada’s revised forecast “will take into account the impact of the uncertainty”. So just like traders who back away from the aggressive moves when there is uncertainty, the BoC is likely to do the same until it understands the impact of a slower economy in Europe and China.
Carney had been baiting speculators to take long positions in the Canadian Dollar since April when he said that a tighter monetary policy “may become appropriate” as the economy moves toward full output. Monday’s comment failed to mention the same, leading to Tuesday’s sell-off.
Traders are slashing long positions as Carney has become less hawkish. This is typical during reevaluation periods. This type of trading usually stops when a market reaches a value-zone.
Technically, the December Canadian Dollar is poised to sell-off further as it approaches a key swing bottom at 1.0099. The secondary lower-top at 1.0256 marked a failure to make a new high, giving traders the ok to shift to the short-side. Now the charts suggest the possibility of a series of lower-tops and lower-bottoms until it reaches a value area.
The first potential downside target for the currency is an uptrending Gann angle from the June 4 bottom at .9545. This angle is at 1.0020 on Wednesday and moves up .0005 per day. Based on the main range of .9545 to 1.0359, the most likely value area is the 50% to 61.8% retracement zone at .9952 to .9856.
If the market does go into a freefall after taking out 1.0099, look for the downtrending Gann angle from the 1.0359 top to provide guidance and direction. This angle comes in at 1.0129 on Wednesday and is moving down at a rate of .001 per day.
The shift in rhetoric by BoC Governor Carney is a sign of lower prices to follow. Look for a weak, but orderly trade down to .9952 to .9856 over the near-term.
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