• Today, the BoC will announce its interest rate decision. The interest rate is expected to remain unchanged, something market pricing seems to agree with, given that the probability for a rate hike at this meeting is currently only 4%, according to Canada’s OIS. Thus, market focus will probably be on the tone of the statement accompanying the decision. As most Canadian economic data since the last BoC meeting have been quite solid, a strong argument can be made that the tone of the statement could be less dovish than previously. Specifically, Canada’s unemployment rate dropped to 5.9% in November from 6.3% previously, while the core inflation rate rose marginally in October. Should the tone of the statement indeed be more upbeat, it could keep the door open for a near- term rate hike and as a result, bring CAD under buying interest.

• USD/CAD traded higher yesterday, breaking above the resistance (now turned to support) level of 1.2660 (S1). During the European morning Wednesday, the pair is trading in a rather consolidative manner, between the aforementioned support and the resistance hurdle of 1.2750 (R1). If the BoC appears optimistic today, the pair could break below the 1.2660 (S1) support level, something that could pave the way for the 1.2600 (S2) support barrier. On the other hand, if investors are disappointed by the BoC, the pair could break above the aforementioned resistance hurdle and aim for a test of the 1.2840 (R2) zone.

USD treads water amid concerns of government shutdown

• The dollar consolidated somewhat yesterday, with mostly limited movements across USD crosses. On the tax front, the House of Representatives and the Senate are set to begin formal negotiations on the tax bill. It’s not all good news, however, as a story of a potential US government shutdown is attracting a lot of media attention. Should US lawmakers not reach a budget deal by Friday, the government will shut down until a deal is struck. If they reach a deal within the next few days, the fog of uncertainty could clear and USD may post some gains.

Today’s highlights:

• During the European morning, we get the industrial orders of October from Germany, which usually is not a major market mover.

• From the US, we get the ADP National Employment Report for November and the figure is expected to come in at 185k. Should the forecast be met, it could heighten expectations for nonfarm payrolls to meet their forecast of 200k as well. Something like that could bring the dollar under renewed buying interest.

• EUR/USD traded lower yesterday after hitting resistance at the 1.1875 (R1) level. The rate dropped to find fresh buy order near the 1.1800 (S1) barrier and subsequently, it rebounded somewhat. Given the price structure on the 4-hour chart, we believe that the pair’s short-term outlook has turned back to neutral, from positive. In case of a strong ADP print today, the bears could take the reins again and aim for another test at 1.1800 (S1). If they prove strong enough to break that hurdle, we could experience further downside extensions, perhaps towards the 1.1760 (S2) level. On the upside, a break back above 1.1875 (R1) could pave the way for the 1.1910 (R2) zone. Having said that, in order for the picture to turn back to positive, we would need to see a break above the 1.1960 (R3) territory, something that would mark a forthcoming higher high on the 4-hour chart.

• We have only one speaker on the agenda today: ECB Executive Member Yves Mersch.

USD/CAD

• Support: 1.2660 (S1), 1.2600 (S2), 1.2550 (S3)

• Resistance: 1.2750 (R1), 1.2840 (R2), 1.2920 (R3)

EUR/USD

• Support: 1.1800 (S1), 1.1760 (S2), 1.1710 (S3)

• Resistance: 1.1875 (R1), 1.1910 (R2), 1.1960 (R3)