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USD/CAD: Powell dismisses taper talks again; BoC eyed

Fawad Razaqzada Fawad Razaqzada 14/07/2021
USD/CAD: Powell dismisses taper talks again; BoC eyed USD/CAD: Powell dismisses taper talks again; BoC eyed
USD/CAD: Powell dismisses taper talks again; BoC eyed Fawad Razaqzada
After yesterday’s big upsurge in US inflation, the focus will be on the Federal Reserve Chairman Jay Powell who is going to be testifying later, as well as the latest policy meeting from the Bank of Canada. The USD/CAD is therefore the chart to watch as we transition to the North American session, especially in light of the crude oil volatility after the Saudi Arabia and the UAE reportedly reached compromise over oil output deal.
 

Powell: recovery hasn't progressed enough to begin tapering

Earlier, the Federal Reserve released the opening statement of Powell’s testimony on the Semiannual Monetary Policy Report to the Congress. Among other things, the text reads that:
 
“While reaching the standard of "substantial further progress" is still a ways off, participants expect that progress will continue. We will continue these discussions in coming meetings. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.”
 
The above statement also reads the FOMC will continue bond buying debate in coming meetings and that inflation is seen elevated in coming months, before moderating.
 
Taking everything into account the Fed Chair still thinks that inflation is going to be transitory, and the markets have responded by sending the dollar lower and stock index futures higher, as concerns over an imminent policy tightening eases. Powell’s testimony is starting at 17:00 BST, and more comments will be released then as he responds to questions regarding inflation and the future of monetary policy. So, Powell could still deliver further surprises. But for now, the market seems to have decided that the tapering talks will not be hurried in light of the latest big jump in inflation.
Still, Powell will be forced to defend the Fed’s policy and will have to try harder to convince the markets that price pressures are still going to be transitory. In particular, it will be very interesting to see how the Fed chair will respond to this latest surge in inflation if pressed by the Senate Banking Committee. Will he still stick to the “transitory” script or change tack slightly?

In the coming weeks and months, if the current trend for inflation continues then surely the FOMC will have to react and do so sooner. For now, though, the market is still giving the Fed the benefit of the doubt by the looks of things.
 

Bank of Canada policy decision due

 
Will rising inflation in the US and elsewhere influence the policy decisions from the Bank of Canada? Well, the Canadian central bank is widely expected to announce a third cut in QE to CAD 2 billion from 3 billion previously. This would be in response to the sharp rebound in employment and as a result of the relatively high covid vaccinations rate.  The nation’s rate of vaccination is very high relative to the rest of the world, and soon half of the population will be fully vaccinated. Business surveys have been rising with majority of Canadian firms think the impact of the pandemic is behind them. Will the BOC share this optimism? Analysts expected the first post covid rate hike to be in the second half of 2022 and the central bank is likely to more or less re-iterate that view with the usual caveats.
 

USD/CAD finds resistance around 1.25

The USD/CAD has started to show signs of weakness near that key 1.25 resistance area with the Fed chair continuing to dismiss inflationary concerns and the Canadian central bank already reducing its QE purchases. What I am looking for next is a drop below the short-term bullish trend line and support circa 1.2370 on a daily closing basis. Meanwhile a clean break above the 200-day average and old high at 1.2650ish would invalidate any short-term bearish bias.

USDCAND
Source: ThinkMarkets and TradingView.com
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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