The bank of Canada announced major changes to its quantitative easing measures, they announced the end of its bond-buying program and an accelerated timetable for rate hikes

28 October 2021, 03:02

Market Focus

The broad U.S. equity markets retreated during Wednesday’s trading. Indices fell from their previously recorded closes. The S&P 500 lost 0.51% to close at 4551.68, the Dow lost 0.74% to close at 35490.69, and the Nasdaq traded sideways to close at 15235.84.

Wednesday’s market retreat was led by the energy sector as oil prices saw their largest single-day decline in more than two months. The WTI December future dropped 0.56% as the U.S. reported a larger-than-expected rise in oil inventory; on the other hand, the Brent Crude December future dropped 0.45% as well.

The U.S. 10-year Treasury yield dropped to 1.54%, while the 30-year Treasury yield settled at 1.948%.

Apple Inc, Amazon Inc, and Samsung are due to report their quarterly earnings on the 28th.

The bank of Canada announced major changes to its quantitative easing measures. The BoC announced the end of its bond-buying program and an accelerated timetable for rate hikes as the bank has expressed its fear of continued inflation amid supply chain disruptions.

Main Pairs Movement

The Greenback depreciated slightly against other currencies as the dollar index closed 0.11% lower. Speculators will now turn their attention to the key economic data including the ECB monetary policy decision and the U.S. initial jobless claim report, which are both due on the 28th.

The yen continued to decline against the dollar, but the BoJ is due to provide monetary policy updates on the 28th, which will provide price actions for the pair. The Aussie dollar continued its second straight day of gains against the Euro as global energy continues to rise alongside upbeat inflation figures from the Australian central bank. The BoC’s firm hawkish stance, as well as its announcement to end quantitative easing, has fueled the Loonie to gain 0.24% against the dollar.

Technical Analysis

USDJPY (Daily Chart)

The USD/JPY pair underwent sudden selling pressure on Wednesday amid the dollar’s weakness, as the US Treasury yields plummeted during the day. The pair dived below the 114.00 threshold during the start of the European session and bottomed at 113.39, the lowest level of the week. However, after the decision of the Bank of Canada to end its QE program, the US bond yields surged and triggered a spike in USD/JPY to 113.83.

After a prolonged risk-on mood, market concerns about the central banks’ contraction moves have finally bubbled up. The rally of equities has slowed down. In some regions, equity prices have even started to fall, benefiting the safe-haven Japanese yen. However, as long as the Bank of Japan remains silent about its monetary policy on Thurday’s meetings, the depreciation of the yen should proceed, as the Fed’s tapering is on the schedule, which will keep lifting the value of the USD in the short future.

On the technical front, the daily MACD histogram turned slightly negative on Wednesday, and the RSI indicator is still lingering below the overbought territory, suggesting that upward traction is still under pressure. We are once again eyeing the 114.00 threshold, and the key resistance level for further uptrend requires passing the 114.30 barricade. If breached, then a fresh yearly high could be anticipated.

Resistance: 114.00, 114.30, 114.70

Support: 113.15, 111.32, 109.37

EURAUD (Daily Chart)

The EUR/AUD pair declined for a third consecutive day on Wednesday amid the flat EUR and the strong AUD, and is now hovering around the key support level of 1.5420, where the lows that were last seen in May sit.

The market mood got cautious on Wednesday. Mineral prices closed mixed, trimming the strength of the commodity-linked AUD. Investors are looking for direction, with all eyes on the ECB’s monetary policy decision, though it is expected to maintain its bond-purchasing plan and keep the interest rate near zero despite the persistently high inflation, to avoid tensions in some peripheral markets.

From a technical perspective, the MACD histogram remains in the bearish territory, suggesting that the selling stream of the cross may proceed. However, the RSI indicator dived deeper into the oversold region, and the growing pressure for sellers may trigger a short-term correction in the very near term, especially if the ECB springs any surprises during the upcoming meetings. On the downside, May’s low of 1.5420 would be a strong level of support against the bears, followed by 1.5250, the yearly low.

Resistance: 1.5616, 1.5776, 1.5910

Support: 1.5420, 1.5250

USDCAD (Daily Chart)

The USD/CAD slumped for the first time in the week, down 0.25% and trading at 1.2360 during the late New York session at the time of writing. Earlier, 30-minutes into the Wall Street opening, the Bank of Canada released its monetary policy decisions announcing the ending of its Quantitative Easing program, which was widely expected to be a reduction instead of a halt.

Before the announcement, the pair climbed above the 114.00 threshold and settled around the 1.2430 level, but soon plummeted over 130 pips after the release of the report, marking a daily low at 1.2300. However, the pair was soon back to its upward trajectory, posting a 60-pip recovery at the moment.

On the technical front, the daily MACD histogram is almost going to form a golden cross, while the RSI indicator is still under the bearish levels, though improving. The price actions are still hovering around the 61.8% Fibonacci. Looking forward, the US GDP reports are going to be released within hours. The pair may regain 114.00 with a boost by the upbeat news of the US.

Resistance: 1.2478, 1.2727, 1.2949

Support: 1.2229, 1.2007