USD/CAD Forecast Hinges on Federal Reserve SEP (Summary of Economic Projections)


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The USD/CAD seems to be trading in a very narrow range after the failed attempt to testing the March/June low at 1.3315, although the interest rate decision by the federal reserve might change the exchange rate with the central bank scheduled to release the latest SEP.

USD/CAD Forecast Hinges on Federal Reserve SEP (Summary of Economic Projections)

The USD/CAD retraced from the previously monthly highs at 1.3259 with the Bank of Canada pledging to undertake the large scale asset sales of about $5 billion every week, and it’s highly likely that the central bank would retain its current policy for the rest of the year as stated by Tiff Macklem and associates that they expect a strong re-opening stage that would be closely followed by the uneven and protracted recuperation phase.

The FOMC (Federal Open Market Committee) might closely follow the same approach with the central bank mulling the calendar-based forward guidance vs. the outcome-based approach for the monetary policy, the same is expected from Jerome Powell, the Chairman and his associates might produce a selective market reaction with the committee vowing to increase their holdings of the commercial mortgage-backed and holdings of the Treasury securities at the current pace.

It is yet to be seen whether the SEP would indicate a looming change in the outlook of the monetary policy with the federal reserve planning to achieve the inflation which averages 2% over time and the latest updates might generate headwinds for the USD incase the interest rate plot show the downward revision in the long term outlook for the Federal Reserve funds rate.

At the moment, the crowding trend in the USD/CAD persisting before the FOMC rate decision although the federal reserve balance sheet climbing back over $7 trillion in august as the retail traders net-long the USD/CAD since May.

The IGCS (IG Client Sentiment) report showing about 71.76% of buyers is net long the pair with a ratio of the buyers short to long at 1 to 2.54. As of today, the number of buyers net-long is 1.77% lower as compared to yesterday and 20.16% higher as compared to last week as Prices of Gold Weaken Ahead of FOMC Meeting Amidst Change in the US Dollar Sentiments.

The increment in the net position comes after the failed attempt to test this march/June low at 1.3315, but the rise in the net long interest shows the slope in the retail sentiments will continue in the next few days with 61.34% of the buyers being net long the pair in the past one week.

USD/CAD Rate Chart


That said, the crowding trend might continue coinciding with a bearish behavior in the USD/CAD and the advancement from the new monthly low at 1.2994 might end being exhaustive of the bear’s price rally.

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