BOC recap: No taper…but watch for catalysts on Thursday!
Joe Perry June 9, 2021 4:16 PM
Although the BOC meeting has passed, there are still catalysts which could cause USD/CAD some volatility
The Bank of Canada left rates unchanged today at 0.25% as expected. In addition, they also left bond buying purchases unchanged at C$3 billion per week. In other words, they did not decrease the amount of bonds are currently buying per week. At their meeting on April 21st, the BOC cut their bond buying from C$4 billion/week to C$3 billion/week. As we discussed in our BOC preview, the reason the BOC did not choose to taper was twofold:
- Two consecutive months of weaker than expected employment data since their last meeting on April 21st
- Canada is still not fully reopened after a third wave of coronavirus cases
Having said that, the BOC left guidance unchanged on policy and inflation. They will continue to provide extraordinary monetary policy until their inflation target of 2% is sustainably achieved. However, current expectations are that the BOC will taper at the July meeting.
Deputy Governor Timothy Lane will be speaking on Thursday on the digital transformation and Canada’s economic resistance. The text will be available at 1:00pm ET and a press conference will begin at 2:20pm, with Q&A. Watch for any hints from the Deputy Governor as to if the BOC will be ready to taper come July.
USD/CAD had sold off into the BOC statement earlier today, however, went bid immediately following the release. This indicates that traders were hoping to get a head start on a BOC “taper” and covered shorts when there was “no taper”. However, given the range on the day in USD/CAD, neither the bulls nor the beats could push the pair out of this week’s tight range between 1.2057 and 1.2118.
Source: Tradingview FOREX.com
We have been monitoring the current trading range since the beginning of May for USD/CAD between 1.2006 and 1.2203. Price has been in a descending triangle since May 13th and has tested the 1.2000 psychological support level several times. The expectation from a descending triangle is that price will break lower it nears the apex. However, after today’s BOC statement, price moved higher, above the top downward sloping trendline. 1.2250 provides the first level of resistance for the pair. If price breaks above, horizontal resistance crosses near 1.2365, just ahead of the long-term downward sloping trendline of a bearish wedge comes into play near 1.2400. If price pulls back into the range, first support is at this week’s lows of 1.2057 ahead of the recent lows at 1.2006/1.2000. Below there, USD/CAD could fall to the April 2017 lows near 1.1917. The price target for the previously mentioned descending triangle is near 1.1840.
Source: Tradingview FOREX.com
Also note that while Crude Oil has been trending higher since May 21st, USD/CAD has been moving sideways. WTI futures pushed above $70 today and pulled back. If Crude oil does continue to pullback under $70, USD/CAD may go bid.
Source: Tradingview, FOREX.com
Although the BOC meeting has passed, there are still catalysts which could cause USD/CAD some volatility. BOC’s Lane speaks tomorrow, and crude oil could move lower under $70. In addition, the US releases CPI in the morning, which could give the USD a jolt. Keep an eye on USD/CAD for possible volatility tomorrow.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.