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The Bank of Canada is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Inflation is broadly in line with the Bank's projection in its April Monetary Policy Report (MPR). Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank's three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.

The global economy continues to gain traction and recent developments reinforce the Bank's view that growth will gradually strengthen and broaden over the projection horizon. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter. The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.

The Canadian economy's adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank's monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.

All things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent.

EUR/GBP - 0.8644

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8575, Target: 0.8675, Stop: 0.8535

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8575, Target: 0.8675, Stop: 0.8535

Position : -

Target :  -

Stop : -

 
As the single currency retreated after our anticipated rise to 0.8675, suggesting consolidation below this level would be seen and pullback to 0.8600-05 cannot be ruled out, however, still reckon downside would be limited to 0.8570-75 and bring another rise later, above said resistance at 0.8675 would extend recent rise from 0.8312 low to 0.8700 but loss of upward momentum should prevent sharp move beyond resistance at 0.8735, risk from there is seen for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro again on pullback as 0.8575-85 should limit downside. Below 0.8550 would defer and suggest top is possibly formed, bring subsequent test of said support at 0.8524, once this level is penetrated, this would provide confirmation.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

The Bank of Canada (BoC) will announce its rate decision and monetary policy statement this afternoon at 15:00 BST. Be aware that it will likely cause volatility for CAD and USD crosses. Market consensus is that the BoC will keep rates unchanged at 0.5%.

USD/CAD has seen a substantial 1.7% retracement since May 5th caused by rising oil prices. USD/CAD bulls retreated after testing the significant resistance level at 1.3800.

The downtrend has held above the significant support line at 1.3500 since Tuesday May 23rd helped by the USD rebound after the release of the 2018 US budget plan.

1.3500 is likely to provide a stronger support.

The daily Stochastic Oscillator is below 20 suggesting a rebound.

The resistance level is at 1.3540, followed by 1.3570 and 1.3600.

The support line is at 1.3500, followed by 1.3450 and 1.3400.

Keep an eye on the FOMC Minutes, to be released at 19:00 BST. We will likely get further clues about a June rate hike and updated economic outlook. Be aware that it will likely cause volatility for USD/CAD.

If USD keeps on rallying, we can expect USD/CAD to rebound at this level. Conversely, if USD falls again, it will likely weigh on USD/CAD and test supports.

OPEC meeting will be held tomorrow May 25th in Vienna discussing whether to extend the existing output cut agreement. Market consensus is that OPEC will extend it so be aware that the outcome will likely cause volatility to USD/CAD.

USD/CAD - 1.3516

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
New strategy             :

Stand aside

Position: -

Target:  -

Stop:-

Although the greenback recovered after finding support at 1.3456 and consolidation with mild upside bias is seen for gain to 1.3550 but break of previous support at 1.3571 is needed to signal low is formed at 1.3456 and bring a stronger rebound to 1.3610-15, then 1.3635-40, having said that, only break of previous resistance at 1.3670 would signal the fall from 1.3792 has ended.

On the downside, below said support at 1.3456 would signal recent decline from 1.3792 top is still in progress for a stronger retracement of early rise, hence weakness to 1.3411 support cannot be ruled out, however, near term oversold condition should prevent sharp fall below there and reckon 1.3350-60 would hold, bring rebound later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

The France CAC 30 is unchanged in the Wednesday session. Early in the North American session, the CAC is trading at 5341.80 points. On the release front, there are no economic releases out of France or the eurozone. The ECB released its semi-annual Financial Stability Review, and the tone was generally positive. ECB President Mario Draghi delivered remarks at an event in Madrid. The ECB released its semi-annual Financial Stability Review, which was generally positive. Later in the day, ECB President Mario Draghi will speak at an event in Madrid. In the US, today's highlight is the Federal Reserve minutes from the May policy meeting.

The ECB released its Financial Stability Review on Wednesday, and the report found that financial stress in the euro-area remained at low levels, as there was growing optimism about economic conditions in the eurozone. The review found that there financial market and bank stress indicators remained contained, but noted that "sovereign stress" had risen in 2017, due to greater political uncertainty, such as the triggering of Article 52, whereby Britain gave official notice that it was withdrawing from the EU. Another concern highlighted by the review is that government finances in the eurozone "remain fragile", and an increase in interest rates could have a negative effect on the fiscal situation of weaker members, such as Italy and Portugal.

The Federal Reserve raised rates back in March, and the markets are expecting the Fed to press the rate trigger again in June. The odds of a rate hike have increased to 83%, according to the CME Group. Just last week, the likelihood of a rate increase stood at 73%. Despite the market speculation, Fed policymakers are keeping their cards close to their chest, at least in their public appearances. On Tuesday, Philadelphia Fed President Patrick Harker said that a June move was a "distinct possibility", but cautioned that a weak inflation report could delay a rate hike. Earlier in the week, Robert Kaplan, President of the Dallas Fed, stated that three interest increases in 2017 was "appropriate". The Fed min

Daily Pivots: (S1) 1.1148; (P) 1.1208 (R1) 1.1241; More....

Intraday bias in EUR/USD remains neutral for consolidation below 1.1267 temporary top. Overall, we'd stay cautious on strong resistance from 1.1245/98 (138.2% projection of 1.0339 to 1.0828 from 1.0569 at 1.1245) resistance zone to limit upside and bring reversal. But decisive break of 1.1298 will carry larger bullish implication and target 1.1615 resistance next. On the downside, though, break of 1.1020 resistance turned support will indicate rejection from 1.1245/98 and turn bias to the downside for 1.0838 support first.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD now far above 55 week EMA. Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Daily Pivots: (S1) 0.9719; (P) 0.9741; (R1) 0.9780; More.....

Intraday bias in USD/CHF remains neutral for consolidation above 0.9691 temporary low. Some more consolidations would be seen but upside of recovery is expected to be limited by 0.9858 support turned resistance to bring another decline. Whole fall from 1.0342 is still in progress and below 0.9691 will target 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617. We'll start to look for reversal signal below there.

In the bigger picture, USD/CHF is bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level.

Daily Pivots: (S1) 111.14; (P) 111.49; (R1) 112.13; More...

No change in USD/JPY's outlook as the rebound from 110.23 might extend higher. But it's still seen as a corrective move. Below 110.85 minor support will turn bias to the downside to extend the fall from 114.36 to 108.12 low. Break there will resume the whole decline from 118.65. In that case, we'll look for bottoming signal again at 61.8% retracement of 98.97 to 118.65 at 106.48.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Daily Pivots: (S1) 1.2931; (P) 1.2982; (R1) 1.3012; More...

GBP/USD is still bounded in range trading below 1.3047 and intraday bias remains neutral. As long as 1.2844 minor support holds, further rise remains mildly in favor. Nonetheless, as we are still viewing price actions from 1.1946 as a corrective move, we'd expect upside to be limited below 1.3444 resistance to bring near term reversal. On the downside, break of 1.2844 will indicate short term topping and turn bias back to the downside for 1.2614 resistance turned support first.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There are signs of reversal, like breaking of 55 week EMA, weekly MACD turned positive, and monthly MACD crossed above signal line. But still, break of 1.3444 resistance is need to confirm medium term bottoming. Otherwise, outlook will remains bearish for extend the down trend through 1.1946 low.

Dollar is trading in tight range today with mild strength against Japanese Yen and Swiss Franc. Markets are looking into today's FOMC minutes to solidify the expectation of a June Fed hike. Euro, despite the retreat against Dollar and Sterling, stays firm with near term bullish outlook. Meanwhile, the financial markets elsewhere are generally steady. European indices are weighed down mildly by news of Moody's downgrade of China, but loss is very limited. US futures are pointing to a flat open. Gold hovers in tight range around 1250.

** Quick update: Canadian Dollar jumps after BoC left interest rate unchanged at 0.50%. The central noted in the statement that "the Canadian economy's adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions."

CAD looks into BoC and OPEC

Canadian Dollar retreats mildly today as markets await BoC rate decision as well as OPEC meeting. BoC is widely expected to keep interest rate unchanged at 0.50%. Recent economic data from Canada have been solid with job gains for six straight month. Consumer spending grew at healthy pace with support from rising home values. But BoC Governor Stephen Poloz has been reluctant to turn more upbeat on the economy and maintained that it's still playing catch up to the US.

Meanwhile, OPEC is generally expected to agree to extend production cut by nine months to March 2018. Kuwaiti oil minister Essam al-Marzouq said that "all options are on the table" and the discussions would include the possibility of deeper production cut or extension by 12 months. WTI crude oil edges higher to 51.88 earlier today but turns cautious then. It's trading at 51.25 at the time of writing.

Top ECB officials sound cautious

ECB Vice President Vitor Constancio said today that the central bank is "fully aware" of the call for ECB to wind down the stimulus measures given the improvement in the economic outlook. And he noted that "there's even a unanimous view about economic developments, that the situation is improving and this will of course be fully reflected in our future decisions." But Constancio noted that caution is warranted given the large slack in labor market and weak wage growth.

On the other hand, ECB chief economist Peter Praet cautioned that "underlying inflation pressures still give scant indications of a convincing upward trend as domestic cost pressures, notably wage growth, remain subdued." Praet also noted that "overall, while we are certainly seeing a firming, broadening and more resilient economic recovery, we still need to create a sufficiently broad and solid information basis to build confidence that the projected path of inflation is robust, durable and self-sustained."

Moody's downgraded China's rating for the first time since 1989

Moody's Investors Service lowered China's credit rating to A1 today, down from Aa3. That's the first downgrade of China in nearly 30 years sin 1989. Moody's noted in a statement that "the downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows." The rating agency also warned that "while ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government."

China's Finance Ministry criticized the that the downside was based on "in appropriate methodology". And, "Moody's views that China's non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy, and underestimating the Chinese government's ability to deepen supply-side structural reform and appropriately expand aggregate demand."

Japanese parliament approved two new BoJ board members

In Japan, the upper house of parliament approved two government nominees for BoJ policy board. The two include economist at Mitsubishi UFJ Research and Consulting Goushi Kataoka and Director of Bank of Tokyo Mitsubishi UFJ Hitoshi Suzuki. Kataoka is known to be a vocal advocate of Prime Minister Shinzo Abe's economic policies and the BoJ's asset purchase program. Outgoing board member Takahide Kiuchi and Takehiro Sato are both known to oppose to BoJ's unorthodox policy. Markets generally view the nomination as supportive to BoJ Governor Haruhiko Kuroda's ultra loose monetary policies.

Former Fed Chair Bernanke urged explicit coordination of monetary and fiscal policies in Japan

Former Fed Chair Ben Bernanke said at the BoJ in Tokyo today that "if all goes well, the BOJ's current policy framework may yet be sufficient to achieve the inflation objective." However, "if not, there are relatively few options available." Meanwhile Bernanke also emphasized that "the most promising possibility -- should we get to that point -- is more explicit coordination of monetary and fiscal policies." He explained that "monetary policy that is aimed at limiting the impact of fiscal expansion on the government's debt could both make fiscal policy makers more willing to act and increase the impact of their actions,"

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2931; (P) 1.2982; (R1) 1.3012; More...

GBP/USD is still bounded in range trading below 1.3047 and intraday bias remains neutral. As long as 1.2844 minor support holds, further rise remains mildly in favor. Nonetheless, as we are still viewing price actions from 1.1946 as a corrective move, we'd expect upside to be limited below 1.3444 resistance to bring near term reversal. On the downside, break of 1.2844 will indicate short term topping and turn bias back to the downside for 1.2614 resistance turned support first.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There are signs of reversal, like breaking of 55 week EMA, weekly MACD turned positive, and monthly MACD crossed above signal line. But still, break of 1.3444 resistance is need to confirm medium term bottoming. Otherwise, outlook will remains bearish for extend the down trend through 1.1946 low.

Economic Indicators Update