Dual Decisions: USD/CAD Tests Support as FTSE 100 Hits Record Highs

Today is decision day. With the Federal Reserve and the Bank of Canada both widely expected to cut rates, volatility is guaranteed. We analyze the divergence: a record-setting FTSE 100 fueled by corporate strength, versus a retreating USD/CAD testing pivotal technical support. Here are the strategies you need to watch.

The markets are poised for a significant reaction as two major central banks deliver their latest monetary policy decisions. With the Fed expected to cut its benchmark rate to 3.75%-4% and the BoC likely to follow with a cut to 2.25%, the moves themselves are almost fully priced in. The real trading opportunity lies in the forward guidance—Jerome Powell's tone on future easing and the Bank of Canada's signal on the end of its cutting cycle.

Trade 1: USD/CAD – Testing the Pivot Ahead of Policy

The USD/CAD pair is falling for a third consecutive session, currently testing the critical 1.3940 area. This decline is a market-driven bet on a double dovish signal: a weaker USD from the Fed combined with a potentially stronger Canadian Dollar (CAD) from the BoC.

Fundamental Focus:

• Dovish Fed: The ongoing US government shutdown and limited labour data increase the likelihood that Powell will remain cautious and reinforce expectations for a further rate cut in December. The potential wind-down of the Fed's Quantitative Tightening (QT) program, as hinted on October 14, would further loosen conditions and weaken the Dollar.
• Neutral BoC: The BoC's expected 25bps cut will take the rate to the bottom of its estimated neutral range. With CPI at 2.4%, the BoC may signal it is near the end of its easing cycle. A neutral-to-hawkish BoC, coupled with a dovish Fed, creates a strong bearish case for USD/CAD.

Technical Forecast (USD/CAD):

The price is testing a pivotal juncture: the 200 SMA support and the August high at the 1.3950 area.

• Bearish Trigger: A decisive close below the 200 SMA brings the rising trendline support at 1.3865 into immediate focus. Below that, the 1.3740 September low becomes the target.
• Bullish Reversal: If the 200 SMA holds, buyers will aim to push above the 1.40 psychological level, with a move above the recent high of 1.4080 needed to resume the broader uptrend.

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Trade 2: FTSE 100 – Record Highs Meet Overbought Risk

In contrast to the Forex market's indecision, the FTSE 100 has surged for an eighth straight session, hitting fresh record highs above 9740. This optimism is driven by key corporate and geopolitical factors.

Fundamental Drivers:

• Earnings Power: The UK index is being lifted by blockbuster corporate results, including GSK (up 4% on stronger Q3 profits and raised full-year forecasts) and Next (up over 5% after upwardly revising its outlook).
• Trade Optimism: Hopes surrounding a potential meeting between President Trump and President Xi Jinping at the APEC summit are boosting heavyweight miners (Antofagasta, Anglo American, Rio Tinto), which make up a large part of the FTSE.
• Weaker Pound: A softer GBP/USD exchange rate provides a favourable tailwind for the multinationals that dominate the FTSE 100, supporting their international earnings.

Technical Forecast (FTSE 100):

The index is trading within a rising channel but is showing signs of momentum exhaustion.

• Overbought Signal: The RSI is currently overbought, warning that a period of consolidation or a pullback is highly likely before the rally can sustain itself toward the next logical target of 9800.
• Immediate Support: The first strong level to watch is 9575, the October 8 high, which should now act as reliable support.
• Lower Low Risk: It would take a significant technical breach below 9350 to signal a reversal of the bullish structure.

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