Top Story

Dovish BOC Sends USD/CAD Soaring

The Bank of Canada met earlier today and left its benchmark interest rate unchanged at 1.75%, as expected.  However, the dovish statement which accompanied the decision sent USD/CAD higher by nearly 100 pips as the Central Bank removed the description of interest rates as “appropriate”.  The BOC also  showed concerns about recent weak data and expressed concerns as to whether it was tied to the domestic economy or the world economy.  In addition, they cut the near term GDP for 2020 to 1.6% from 1.8%, while raising the 2021 forecast to 2.0% from 1.8%.  Combine this with release of the poor CPI data this morning and is was a recipe for disaster for the Canadian Dollar.  (CPI MoM for December was 0.0% vs 0.1% expected.  Core CPI YoY was 1.7% vs 1.9% expected).

Upon release of the statement, USD/CAD pairs took off like a bat out of hell.    The possibility of this move was discussed yesterday in our BOC preview.   

Source: Tradingview, FOREX.com

Previously the BOC had been quite neutral, one of the few Central Banks to remain so.  USD/CAD had recently broke lower out of its long-term symmetrical triangle on a daily timeframe.   With the move higher today, the pair is looking to test the underside of bottom trendline and the 200 Day Moving Average, which converge near 1.3220.  A break above here would indicate a false breakdown and could lead to a test of the upper trendline near 1.3330.

Source: Tradingview, FOREX.com

On a 240-minute timeframe, the pair moved to the 50% retracement level from the highs on November 19th, 2019 to the lows on December 31st at 1.3142.  Resistance crosses above at the 61.8% retracement level of the same time period near 1.3186.  There is also horizontal resistance near 1.3230, which confluences with the previously mentioned 200-day moving average and the long-term trendline.  Support now is at previous highs near 1.3100, as well as horizontal support near 1.3020, before returning to the December 31st lows at 1.2954.

Source: Tradingview, FOREX.com

On Friday Retail Sales for November will be released.  0.4% is expected for the headline vs -1.2% last.  In addition, next week we will see GDP and PPI.  The Bank of Canada doesn’t meet again until March 4th.  If the data over the next 1 ½ months continues to remain weak, the BOC may be ready to cut rates (if not before then!).   


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.