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Daily Pivots: (S1) 1.2489; (P) 1.2537; (R1) 1.2612; More....

Intraday bias in USD/CAD remains on the upside. Current rise from 1.2061 should target 1.2777 resistance next. Decisive break there will target key medium term fibonacci level at target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. On the downside, below 1.2448 minor support will turn intraday bias neutral again.

In the bigger picture, current development argues that USD/CAD has defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

As the gatekeepers of a country's fiscal policies, central banks play an essential role in stabilising their local economy. The list of central bank responsibilities runs long, but in a nutshell, their primary duties include balancing monetary supply and demand;managing credit levels;supervising the growth of financial institutions and controlling interest rates. Proper management of these functions fosters economic growth and creates stability in the country.

Fulfilling these obligations is the type of balancing act that requires extra care, and a firm grasp on the rudiments that make up a healthy economy. Sometimes, however, a cautious fiscal mandate clashes with the reigning government's agenda; if the monetary policy is set by branches of the government, the economy's stability could be at risk.

Thanks to checks and balances in democracies, devious leaders rarely get away with attempts to undermine sensible economic policies as a way to appeal to voters, or promote a personal agenda. In certain third world countries however, a country's fiscal policy is often sacrificed by leaders who have a myopic way of thinking.

Jameel Ahmad, VP Corporate Development and Market Research at FXTM, says: “there are many examples of economies damaged by meddling leaders and their political aspirations, which go against the economic status quo. An incumbent may put pressure on their central bank to reduce interest rates during election time, because this may increase disposable income, boost economic growth and decrease unemployment – scenarios that would help the incumbent get re-elected.

However, these are short-lived gains because the haphazard act of loosening a country's monetary policy can cause the economy to grow faster and increase inflation, even to a point where it spirals out of control. Despite the negativity associated with politicians trying to exert undue influence on monetary policy, it is a common occurrence”.

Raghuram Rajan, the governor of the Reserve Bank of India, was recently squeezed out of his job by politicians belonging to the ruling Bharatiya Janata Party (BJP) party. In July 2017, the African National Congress, South Africa's ruling party, proposed that the South African Reserve Bank (SARB) be nationalised. As soon as the news hit, the Rand predictably fell, by around 1.5%, to R13.45 against the USD. While Finance Minister Malusi Gigaba keeps saying all the right things aimed at protecting the independence of the Reserve Bank, a sinister undertone may be implied. Nationalisation will, by its very nature, give the government more influence over policies.

Politicians like the money supply to increase before elections, because a reduction in interest rates stimulates economic activity; consumers increase borrowing and consumption. Businesses borrow more to invest in production, and employment figures start to look more attractive. However, this kind of economic stimulus precipitates inflation. Eventually, the economy goes into reverse, and there is a reduction in the money supply, while interest rates increase.

The mandate of a central bank is materially linked to a country's economic progress but they do not always rise to the challenge. Perhaps the most spectacular example is Venezuela's central bank, which can only be described as a catastrophe. The weakening economy of Venezuela under the regime of President Nicolas Maduro, is forecast by the International Monetary Fund (IMF) to reach a consumer-price inflation rate of a massive 1,640% by the end of 2017. This has been, in part, precipitated by the disastrous management of the central bank by Nelson Merentes, who was recently asked to step down as governor. The impact on the economy includes shortages of food staples such as milk, flour, and it has also resulted in medicinal shortages, electricity cuts, rising unemployment and a noticeable increase in crime.

In recent years, there has been an increasing trend to give monetary policy decisions to independent central banks. Countries that do this tend to fare better, according to research. In addition to making more measured economic decisions, a country with an independent monetary policy garners more credibility, which in turn earns more confidence from the international community. In and of itself, this helps maintain the favour of citizens, investors and ratings agencies.

“Central bank independence is a widely accepted practice today. Perhaps the bigger issue is whether they should wait for inflation to take hold before they act, or act when they see the first signs. Interest rates are good indicators of the health of an economy. Ideally, they should be allowed to rise and fall naturally as the economy expands or contracts, and they should not be influenced by political agendas” says Ahmad. As independent as they are, central banks will always be accountable to their masters, walking the fine line of holding onto independence while trying not to invoke the wrath of the institution that can pull the rug – the government.

The undeniable rise of digital currencies is blinking on every radar in the financial markets. With the proliferation of FinTech start-ups over the past several years (especially in the wake of the 2008 global financial crisis), finance is in the midst of an infrastructural revolution; the use of artificial intelligence and open-source applications is rapidly gaining more momentum as viable ways to transact, move funds, manage bank accounts and interact with trusted third parties. No innovation, however, has been as disruptive as cryptocurrencies – a computerised form of money that is beholden to no central bank and typically uses an online ‘ledger’ as an accounting database through which users can send each other virtual money.

In 2017, cryptocurrencies have experienced an astounding rise in value, while major currencies and traditional safe haven assets hobble to the beat of the geopolitical drum. Due to their unregulated and decentralized nature however, many countries have started to be extra cautious with cryptocurrencies. Chinese regulators have issued a comprehensive ban on platforms that allow people to buy or sell virtual currency in China. They also cracked down on Bitcoin trading and Bitcoin exchanges, which prompted BTCChina, one of the largest Bitcoin exchanges in the country, to cease all crypto operations by 30 September.

While big banks and governments come to grips with how to handle cryptocurrencies, they have become too prominent in discussions, and in the actual markets themselves, to be ignored. As a result, many forex brokers have jumped on the bandwagon and introduced cryptocurrencies into their list of trading instruments. Jameel Ahmad, the VP of Corporate Development and Market Research at FXTM, states that “FXTM has been keeping a very close eye on cryptocurrencies, and the increased consumer demand for these assets on a global level. Our commitment has always been to provide our traders with tailored solutions that fit their investment needs and the demand for cryptocurrency trading has been too vociferous to ignore. Although we offered the option to fund accounts with Bitcoin some time ago, we have recently introduced the option to trade cryptocurrencies on CFDs.”

The rising tide

Bitcoin, the prototype crypto that was birthed in late 2008, is the most commonly known digital coin in the world. Back in 2012, one Bitcoin wasn’t even worth $20. Today, that same Bitcoin is valued at a massive $4,000. This year alone, the currency experienced a 350% price increase from January to August, while Ethereum (a cryptocurrency associated to its eponymous open source platform) shot up by 3600% between January and June. Other cryptocurrencies have followed suite, including Litecoin which rose by 1600% between January and July.

Added to the fact that there is a growing trend to move away from centralized monetary systems, and a lack of trust in intermediaries often seen as impediments to efficient banking, the sudden surge of interest in digital currencies is tied to the recent upheavals that have shaken the traditional markets. Last year’s political shocks in the United Kingdom and the United States and the continuing tensions and political shakeups in the UK, North Korea, the US and the Middle East have all made traders wary. Naturally, this has significantly increased demand and fuelled interest in both consumers and institutions.

Are cryptocurrencies the new safe haven?

This is one of the biggest questions currently circling the watercoolers in brokerages and financial firms across the world. Traditionally, cryptocurrencies have a reputation for volatility, which would make the wary trader stay far away. Once news of BTC China’s closure broke, Bitcoin’s value dropped by a $1000 over the course of a few days. Although it quickly recovered, these types of big swings are exactly what makes traders cautious. The huge price swings that Ethereum, Dogecoin and Ripple experienced in this year alone has also made investors jittery. Some other traders, on the other hand, have dubbed Bitcoin as ‘digital gold’.

In March, Bitcoin’s value surpassed gold – the longest-standing safe haven asset for investors – in value, when the Bitcoin Price Index (BPI) marked the value of a single bitcoin at $1,238.11 and Bloomberg reported $1,237.73 per ounce for gold. Since then, gold has been oscillating in the $1200s range, while Bitcoin’s value has continued to rise. The ongoing tension between the US and North Korea is a good example of how the two assets reacted during the early days of the feud: Bitcoin broke through the $3,000 barrier before breaking another record and reaching over $4,000 – in a matter of days. Gold responded similarly, from $1258.80/oz. in early August and a steady rise to $31 as the threatening rhetoric between the two nations escalated.

It’s not surprising that some investors are perceiving digital coins as an alternative investment, but given the circumspect relationship between traditional financial institutions and cryptocurrencies, it is definitely too early to call them safe havens. Those traders who do would benefit from also implementing rigorous risk management practises in their trading.

As things stand, other brokers will most likely join FXTM in offering cryptocurrencies as an investment solution, but they will need to properly educate their traders and make sure they understand all the risks entailed when trading cryptocurrencies.

USDJPY (112.84): The USDJPY has remained steady near the 112.88 - 113.00 level for the past few sessions. This marks the long term test of the falling trend line as well which is currently acting as a dynamic resistance. A breakout off this level can only come by on an improved sentiment in the U.S. dollar. This coincides with today's payrolls report. However, a disappointing payrolls data despite the short term influence of the hurricanes could see the USDJPY remain range bound with the downside bias seeing a test of 111.74 support

GBPUSD (1.3097): The British pound broke past the support level at 1.3236 as price continued to push lower. Even the minor support level at 1.3161 was also breached. This signals a continued downside momentum. GBPUSD will be seen testing the lower support at 1.2980 region. Any short term retracements are likely to be limited to the recently breached support level at 1.3236. Establishing resistance here could confirm the downside in the GBPUSD.

EURUSD (1.1702): The common currency weakened yesterday as price action was seen giving up the gains from the previous days. Support at 1.1688 is relatively close and could be tested in the short term. EURUSD continues to consolidate inside the descending wedge pattern as long as price remains supported above or close to 1.1688. A breakdown below this support could signal further declines invalidating the potential bullish outlook. To the upside, a breakout could result in EURUSD testing the resistance level at 1.1822 where resistance is most likely to be formed.

The U.S. dollar managed to maintain its bullish momentum on Thursday after economic data released showed that the trade deficit narrowed to $42.2 billion in the month of August. This marked the lowest levels since a year. Orders for capital goods excluding non-defense rose 1.1% in August beating estimates of 0.9%. The U.S. House of Representatives approved the fiscal 2018 budget draft which is expected to pave way for the government to go ahead with the tax reforms.

Elsewhere, the ECB's meeting minutes revealed that the central bank is on path to tapering QE but that it could happen at a gradual pace.

Looking ahead, the September payrolls report will be released today. According to the estimates, the U.S. economy is expected to add 82k jobs for the month of September which is below the average trend. On the upside, wages are expected to grow 0.3% on the month while the unemployment rate is expected to remain steady at 4.4%. Canada will also be releasing its jobs report today and the Canadian unemployment rate is expected to tick higher to 6.3% from 6.2% in the previous month.

On Thursday, the US Department of Labour released Initial Jobless Claims for the week ending September 29th. Surprisingly, the number Americans filing for unemployment benefits fell more than expected to 260K. The market forecast was for 265K from the previous release of 272K. The figures do not, however, factor in the impacts of the recent Hurricanes – which has impacted labour market data collection.

Also on Thursday, the Bureau of Economic Analysis and the U.S. Census Bureau, released Trade Balance data for August. The US trade deficit narrowed to $-42.4B from the previous reading $-43.6B. The narrowing of the deficit underscores the current strength in the US economy. August exports of services & goods rose to a 30-month high, with core capital goods being stronger than previously reported.

Sterling came under downward pressure on Thursday, following Prime Minister Theresa Mays’ keynote address at her Party’s Political Conference that was seen by many as a disaster. A coughing bout, a prankster, signage falling off the stage and her somewhat nervous demeanor has led to many of her own party suggesting her time as Leader is up. According to a National UK Newspaper, there are over 30 Conservative Lawmakers who are prepared to sign a letter calling for her resignation. Whilst Theresa May is obviously “wounded”, it is highly unlikely that she will resign at a time when the UK needs consistency as they negotiate their divorce from the EU.

EURUSD is trending lower in early Friday trading. Currently, EURUSD is trading around 1.1690.

USDJPY is nearly 0.2% higher to currently trade around 113.00 – Friday’s early high for the pair.

GBPUSD remains under pressure, down 0.3% in early Friday trading. Currently, GBPUSD is trading around 1.3080.

Gold is little changed overnight, currently trading around $1,268.

WTI is down 0.2% overnight to currently trade around $50.90pb.

Major economic data releases for today:

At 13:30 BST, the US Department of Labor will release NFP for September, per market consensus, it is expected to come in at a meagre 88,000 due to the impact of the recent Hurricanes. However, with the knowledge that NFP has been negatively impacted by Harvey and Irma, the markets will have “priced-in” a potentially poor data release. The markets will be also closely watching the Average Hourly Earnings release at the same time. The markets are hoping to see an improvement on the previous readings. The previous release of 0.1% was the lowest increase since March. The consensus is calling for a robust increase in September’s release to 0.3%. With higher average earnings, consumer spending should increase, which will then help create inflationary pressure – helping underscore the Federal Reserve’s plans to hike rates before the end of the year. Closing out the slew of Department of Labour data releases will be US Unemployment. Consensus calls for an unchanged rate of 4.4%.

At 13:30 BST, Statistics Canada will release Canadian Unemployment Rate and Net Change in Employment for September. Net change is expected to be +14.5K and the Unemployment rate is expected to rise from 6.2% to 6.3%.

Brent Oil rallied in the yesterday’s session, but failed to close above the median line (ML) of the major ascending pitchfork. Price is trading in the red right now and tries to stabilize below the 250% Fibonacci line (descending dotted line). I’ve said in the previous days that a retest of the ML followed by a minor drop will confirm a larger drop in the upcoming period. Only a valid breakout above the ML and above the 57.72 will validate an increase at least till will reach the 59.50.

GBP/USD drops further on the short term and seems too heavy to be stopped. Price has broken through the confluence area formed at the intersection between the 250% Fibonacci line of the ascending pitchfork with the median line (ml) of the descending pitchfork. The pair is almost to hit the 1.3046 static support, where he could find temporary support. The breakdown below the 250% line and below the median line (ml) still needs confirmation. I’ve said in the previous reports that a valid breakdown will conform a larger drop.