Article / 20 January 2017 at 16:01 GMT

Bank of Canada says 'Gotcha'!

FX Trade Strategist /
  • Donald Trump's presidency ushers in a new "haira" 
  • Next week's second-tier data will be overshadowed by the White House
  • USDCAD languishes in broad trading band
Trump's hair
This US administration will look like none that's gone before. Images: iStock

By Michael O'Neill

Wednesday’s Bank of Canada policy meeting and Monetary Policy Report release was not expected to provide any drama. In fact, some pundits suggested that they wouldn’t have even have had a meeting if it hadn’t already been scheduled. 

For the most part, the BoC policy statement and the MPR lived up to the advance billing. They left rates unchanged and seemed mildly optimistic that inflation would move closer to their 2% target in the coming months. The MPR saw a tick higher in domestic and global growth projections. That was about it. A true non-event.

Then came the press conference. A question about interest rates got this answer from the BoC governor; “Yes, a rate cut remains on the table”. The scream from USDCAD bear’s being eviscerated, drowned out governor Stephen Poloz’s smug “gotcha”.

Friday’s release of inflation data seems to have validated Poloz’s concern about inflation and the risks to domestic economic growth. CPI data was disappointing. (All items, December Actual 1.5% vs. forecast 1.7%) as were November Retail Sales.

Despite all the drama in FX markets since the US election including Theresa May’s Brexit speech, Trump twitter bombs and of course, Poloz’s “gotcha”, the Loonie has been resilient.

USDCAD has been locked in a 1.3000–1.3600 trading range since September. Attempts to break either side of the range have failed miserably.

The intraday USDCAD technicals are bullish while prices are above 1.3310 supported by the move above 1.3240, the 38.2% retracement of the December-January range. The rally has stalled at 1.3375, the 61.8% Fibonacci range. A move below 1.3310 will lead back to 1.3240 and possibly 1.3170. A break above 1.3375 hangs a target on 1.3460. The steepness of the rally suggests further 1.3240–1.3375 consolidation before another topside test.

Chart: USDCAD hourly with Fibonacci levels shown
 Source: Saxo Bank

The week that will be 

Welcome to the Donald J. Trump haira, I mean era. Trump has promised to get right to work on Day One with several actions, including; beginning work on the border wall, suspending immigration from terror-prone regions (Chicago? 762 murders in 2016), instituting a hiring freeze (which may be tough to do with reportedly 690 vacancies for positions needing Senate approval) and dismantling Obamacare.

But Trump won’t be the only show. There is some data risk at the end of the week when the US releases Durable Goods, Preliminary Q4 GDP and the Michigan Consumer Sentiment Index. It is also the start of  earnings season for US corporations.

Elsewhere, Australia and New Zealand release CPI data on Wednesday and Thursday respectively.

The European Central Bank policy decision and Mario Draghi’s press conference on January 19 will diminish the importance of the 2nd tier Eurozone data that gets released over the course of the week.

That won’t be the case in Great Britain. UK Q4 GDP data could cause some fireworks if it disappoints.

The week will end with Asian markets looking forward to Chinese New Year and all the festivities.

The week that was 

Donald Trump’s is a tough act to upstage at the best of times and in this week, in the run-up to his inauguration, it was still the case. Sure, the UK prime minister and the president of the European Central Bank had a turn in the spotlight but they faded from prominence faster than a bag of munchies at a Grateful Dead concert.

Monday, Asia traders read the UK Sunday Telegraph’s report that prime minister May would seek a “hard” Brexit and give the details in her speech on Tuesday. The article was prescient. GBPUSD gapped lower dropping from 1.2290 at Friday’s close to a low of 1.2018.

That set the tone for the rest of G10 FX and G10 currencies played defence for the rest of the day. New York was closed for Martin Luther King Day.

Tuesday, A Trump tweet about the dollar being too strong against the Chines renminbi unsettled markets and the US dollar slid. USDJPY jumped on safe-haven demand. EURUSD rallied to 1.0719 from 1.0585.

British prime minister Theresa May confirmed the Sunday Telegraph story of a hard Brexit when she outlined a 12-point strategy for leaving the European Union. In a text-book example of “sell the rumour, buy the fact” GBPUSD rallied and recouped all of its Monday losses. It then added another 0.0200 points, for good measure. US dollar selling continued until New York went home.

Wednesday’s Asia session was a tad subdued with traders awaiting  US CPI data. GBPUSD retreated from its opening level of 1.2416 and dropped to 1.2309 by the New York open. Aussie and Kiwi followed suit. USDJPY got a bit of a bump ahead of the US inflation report.

US CPI and other data releases were strong giving additional support to the greenback. The Bank of Canada interest rate statement and monetary policy report was as expected and a non-event. The real event occurred 90 minutes later during governor Poloz’s press conference. He answered a question about interest rates with “Yes rate cuts are on the table” USDCAD soared and hasn’t looked back since.

Fed chair Janet Yellen trumped (no, not that one) the BoC governor’s comment when she told an audience in San Francisco that the federal funds rate would be close to 3% by the end of 2019. Hmmm, the dove speaks with hawk tongue.

Thursday, the Asia and the morning European FX session was quiet. Traders were still digesting Wednesday’s US dollar moves and were wary ahead of the ECB meeting. Another round of steady to strong US data combined with what was perceived to be a dovish Mario Draghi press conference led to US dollar buying across the board. However, in a rather weird move, the dollar rally started to unravel near the end of the European session and by the end of the New York session, the dollar was virtually unchanged against the G10 currency bloc.

Friday, the US dollar declined in Asia,  rallied in Europe and opened in New York a tad higher than it was at Thursday’s close. 

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd

fxtime fxtime
Promised 'Day One' action is ignore the press and facts and then expect the world to believe the trump fantasy. I guess he should buy Disney. Never have I seen a president act in such a way.....the rest of the World cringes at the silliness seen so far but I wonder if the Americans themselves feel the same way?
Andrew Perkins Andrew Perkins
rocky times ahead
jjlewis jjlewis
We have a direct genuine provider for BG/SBLC specifically for lease, at leasing price of 4+2 of face value, Issuance by HSBC London/Hong Kong or any other AA rated Bank in Europe, Middle East or USA.

Contact : Mr Jerry Lewis
Email: ballinasloe_financial_services_limited@europe. com

Intermediaries/Consultants/Brokers are welcome to bring their clients and are 100% protected. In complete confidence, we will work together for the benefits of all parties involved.

All inquires to Mr. Jerry Lewis should include the following minimum information so I can quickly address your needs:

Complete contact information:
What exactly do you need?
How long do you need it for?
Are you a principal borrower or a broker?

Contact me for more details.

Jerry Lewis


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail