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USDCAD swung between gains and losses on Friday and may close the week lower due in large part to rising oil prices. With no significant economic data released during the week, the Canadian dollar’s movements have hinged on the oil market, while investors betting on the U.S dollar are cautiously waiting for important events scheduled for later today.
Oil extended its gains on Friday, after turning higher on Thursday, even after the U.S. Energy Information Administration on Thursday reported that U.S. crude stocks rose for the first time in six weeks. Crude stockpiles in the U.S swelled by 4.9 million barrels in the week ending Oct. 7th. Total inventories rose to 474 million barrels, but distillates, which include diesel and heating oil, dropped by 3.7 million barrels and gasoline fell by 1.9 million barrels.
As a result, the commodity dependent Loonie closed yesterday’s session at 1.31850 versus the U.S dollar but has lost some steam as the greenback regained ground amid rising expectations that the Federal Reserve will raise rates by the end of this year.
The U.S labor market remains a supporting factor that is helping build up Fed policymakers’ confidence to make a move on rates for the first time since December 2015. Adding to last Friday’s Non-farm Payrolls data which were considered to be “ideal” by Fed Vice President Stanley Fischer, the U.S Department of Labor on Thursday reported the lowest number of people filling for unemployment benefits in four decades.
According to the weekly jobless claims report, jobless claims were at 246,000 in the week ending October 8th, remaining below 300,000 for 84 straight weeks and indicating a healthy labor market. In the current environment, where there is a scarcity of potential job candidates and record-high number of job openings, employers have to either restrain from laying off workers or have to raise wages. Higher incomes equate to the possibility of higher inflation as disposable incomes rise across the board and household income and spending rise as a result of it. Household spending accounts for 70% of the U.S economy.
Markets are pricing in a more-than-two-thirds chance of a rate hike at the last FOMC meeting of the year which is scheduled on December 13-14. Prior to the opening of the U.S session, a batch of U.S economic data including September retail sales and producer prices will be released. September retail sales and core retail sales are expected to swing back into expansion after shrinking or remaining unchanged in the two previous months.
Federal Reserve Chairwoman Janet Yellen will deliver a speech at 17:30 GMT at the Boston Annual Research Conference. President Yellen will talk about the US economic recovery. Further clues regarding the pace of future rate hikes are being expected with great anticipation..
Fig: USDCAD D1 Technical chart
USDCAD has been in an uptrend since September 07th. Despite consistent reversals to the downside, the pair has been able to create higher lows and higher highs to reach the 38.2% retracement level. Besides the upward sloping support trendline connecting the higher lows, the market has been supported by the two MAs placed below the price action. The pair may surge higher since bulls are overwhelmingly dominant in the market, as indicated by the strength of the RSI.
Buy Digital Call option from 1.32000 to 1.32400 valid until 20:00 GMT October 14, 2016