Open trading account 
The Bank of Canada will announce their latest decision on interest rates on Wednesday 19, October 2016 at 15:00 GMT. The bank will release its rate statement along with the monetary policy report at the same time, while there’s a BoC Press Conference about an hour after that and a speech by BoC Governor Stephen Poloz a few hours later.
The Bank of Canada is expected to stand pat in October for a variety of reasons, which include the still pending assessment of the effects of the governments stimulus package, the application of the recently taken measures for moderating the real estate market, the uncertainty over the Fed’s potential hike and more.
Macroeconomic Developments
Below, we present you some of the most important indicators of the Canadian economy’s health and performance, since last September’s rate decision:
Positive releases
Technical Outlook
From a technical analysis point of view, the loonie seems to be at a very important juncture. The pair is trading between support and resistance levels and it is currently testing the support level.
On the weekly chart, we can see that the pair hit resistance at the 55-week SMA last week, and this week so far, it has dropped and found support at the 21-week SMA, while the 14-week RSI is testing its 9-week SMA. A weekly close below the 21-week SMA, which will result in a break below the 9-week SMA of the RSI, will be a strong bearish signal.
On the daily chart, prices found support at the 55-day SMA. The major mid-term resistance of 1.33 stopped last week’s rebound and since then the pair seems to be rather weak, closing lower almost every day since then. Despite that weakness, we expect the support of the 55-day SMA to hold, since our Elliott wave analysis expect a much larger wave C. Price action has been choppy, since the beginning of last May and the overlapping waves makes it difficult to count the price action that followed as an impulse to the downside. The best possible count, suggests that the pair is still in corrective mode and wave C is still very small compared to wave A.
On the 4-hour chart, this week’s continuation of the bearish reversal brought prices below all SMA, the 144-period SMA rejected a rebound and that resulted in more weakness. Now the 21-period SMA is the moving average that put immediate pressure, a break above it will be the first sign of the expected bullish reversal. It seems that the RSI has already rebounded and its 9-period SMA is about to prove itself as support for the immediate momentum.
On the hourly chart, yesterday’s rebound was limited by the 55-hour SMA and prices reversed back lower. Despite that, the immediate momentum remains bullish and our Elliott wave count supports the idea of a subsequent rebound, although another modest low cannot be excluded.
How to Trade the BoC Interest Rate Decision
Based on our broader Elliott wave count, the pair should rebound towards 1.3550 and possibly higher in the longer term, which is about 500 pips higher than current prices. Our immediate count will be invalidated at about 80 pips below current levels, at 1.30. That results in an enormous RRR (risk/reward ratio) for those who are willing to buy the pair.
A drop below 1.3060 will definitely hurt the immediate bullish momentum. Therefore, taking into account the short-term momentum the expected RRR get even higher – 20 pips loss vs 500 pips profit.
A great strategy to trade the news, is to split positions. Therefore, one should trade half a position with SL at 1.3060 and the other half with SL at 1.30. That will result in an average SL at 1.3040.
The Bank of Canada is expected to stand pat in October for a variety of reasons, which include the still pending assessment of the effects of the governments stimulus package, the application of the recently taken measures for moderating the real estate market, the uncertainty over the Fed’s potential hike and more.
Macroeconomic Developments
Below, we present you some of the most important indicators of the Canadian economy’s health and performance, since last September’s rate decision:
Positive releases
- Trade Balance (Aug) | -1.9B actual vs -2.2B previous vs -2.5B expected.
- Unemployment Rate (Sep) | 7.0% actual vs 7.0% previous vs 7.0% expected.
- Ivey PMI (Sep) | 58.4 actual vs 52.3 previous vs 53.0 expected.
- Foreign Securities Purchases (Jul) | 12.74B actual vs 9.10B previous vs 6.24B expected.
- Manufacturing Sales (Jul) | 0.9% actual vs 0.1% previous vs 0.3% expected.
- Ivey PMI (Aug) | 52.3 actual vs 57.0 previous vs 55.5 expected.
- Building Permits (Jul) | 0.8% actual vs -5.3% previous vs 3.2% expected.
- Unemployment Rate (Aug) | 7.0% actual vs 6.9% previous vs 6.9% expected.
- Manufacturing Sales (Jul) | 0.1% actual vs 0.8% previous vs 0.6% expected.
- Foreign Securities Purchases (Jul) | 5.23B actual vs 9.02B previous vs 10.12B expected.
- Wholesale Sales (Jul) | 0.3% actual vs 0.7% previous vs 0.3% expected.
- Consumer Price Index (Aug) | -0.2% actual vs -0.2% previous vs 0.1% expected.
- Retail Sales (Jul) | -0.1% actual vs 0.0% previous vs 0.2% expected.
- Gross Domestic Product (Jul) | 0.5% actual vs 0.6% previous vs 0.3% expected.
- RBC Manufacturing PMI (s.a.) (Sep) | 50.3 actual vs 51.1 previous vs 51.5 expected.
Technical Outlook
From a technical analysis point of view, the loonie seems to be at a very important juncture. The pair is trading between support and resistance levels and it is currently testing the support level.
On the weekly chart, we can see that the pair hit resistance at the 55-week SMA last week, and this week so far, it has dropped and found support at the 21-week SMA, while the 14-week RSI is testing its 9-week SMA. A weekly close below the 21-week SMA, which will result in a break below the 9-week SMA of the RSI, will be a strong bearish signal.
On the daily chart, prices found support at the 55-day SMA. The major mid-term resistance of 1.33 stopped last week’s rebound and since then the pair seems to be rather weak, closing lower almost every day since then. Despite that weakness, we expect the support of the 55-day SMA to hold, since our Elliott wave analysis expect a much larger wave C. Price action has been choppy, since the beginning of last May and the overlapping waves makes it difficult to count the price action that followed as an impulse to the downside. The best possible count, suggests that the pair is still in corrective mode and wave C is still very small compared to wave A.
On the 4-hour chart, this week’s continuation of the bearish reversal brought prices below all SMA, the 144-period SMA rejected a rebound and that resulted in more weakness. Now the 21-period SMA is the moving average that put immediate pressure, a break above it will be the first sign of the expected bullish reversal. It seems that the RSI has already rebounded and its 9-period SMA is about to prove itself as support for the immediate momentum.
On the hourly chart, yesterday’s rebound was limited by the 55-hour SMA and prices reversed back lower. Despite that, the immediate momentum remains bullish and our Elliott wave count supports the idea of a subsequent rebound, although another modest low cannot be excluded.
How to Trade the BoC Interest Rate Decision
Based on our broader Elliott wave count, the pair should rebound towards 1.3550 and possibly higher in the longer term, which is about 500 pips higher than current prices. Our immediate count will be invalidated at about 80 pips below current levels, at 1.30. That results in an enormous RRR (risk/reward ratio) for those who are willing to buy the pair.
A drop below 1.3060 will definitely hurt the immediate bullish momentum. Therefore, taking into account the short-term momentum the expected RRR get even higher – 20 pips loss vs 500 pips profit.
A great strategy to trade the news, is to split positions. Therefore, one should trade half a position with SL at 1.3060 and the other half with SL at 1.30. That will result in an average SL at 1.3040.