Bank of Canada set to raise interest rates by 25bp today
Summary
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USDCAD: All eyes will be on the Bank of Canada this morning as the central bank is expected to hike interest rates for the 5th time since last summer. We expect the focus to be on the tone of forward guidance in the press release at 10amET, followed by the tone from Stephen Poloz during his press conference at 11:15amET. We think the central bank will strike a balanced outlook today; talking up the recent Business Outlook Survey and the USMCA while at the same time acknowledging the recent softness in headline inflation. The weekly EIA crude oil inventory data comes out in the middle of all this at 10:30amET, which should make things interesting for USDCAD traders. The consensus is calling for a 3.69M barrel build in inventories after the uber bearish API numbers out late yesterday (+9.88M). There are no major option expiries to note today for USDCAD. We think a hawkish hike will put chart support in the 1.3060s at risk of breaking, which would then mean a swift move back down to the 1.3000 figure is possible. Conversely, a dovish hike would invite buyers to test trend-line resistance at the 1.3130s once again. A mixed or neutral tone will likely see us chop around current levels. Keep an eye on crude oil today as well, as the market looks like it wants to bounce with equities this morning. Anything less bearish than expected out of the EIA, given all the recent pessimism in crude oil, might also be celebrated by oil traders (which would be USDCAD negative). The funds are still net long USD (short CAD) going into today.
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EURUSD: The Euro never managed to close above trend-line resistance in the 1.1480s yesterday, or the line in the sand we talked about. This invited the sellers back in overnight and when the Eurozone manufacturing PMIs for October came out much weaker than expected across the board (Eurozone, France and Germany), this was the straw the broke the camel’s back. EURUSD has quickly fallen to a new 2 month low, and this sets us up for a dovish tone from Mario Draghi tomorrow when the ECB meets. Trend-line support at the 1.1400 level is under attack now. The uptrend in the BTP/Bund spread looks back on track after this weeks brief foray below 300bp. USDCNH is teasing traders with the 6.95 level again this morning, despite a slightly lower USDCNY fix from the PBOC last night. We think the growing fund short position in EURUSD gets more confident here.
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GBPUSD: Sterling continues to hemorrhage today, following EURUSD lower. The positive effect from yesterday’s Brexit headline was short-lived when a spokesperson for Theresa May said that any separate customs treaty for Northern Ireland would be “unacceptable”. This saw GBPUSD pull back below trend-line support in the 1.3010s going into the NY close, which then sort of sowed the seeds for further weakness today. The market is now making a bee line for the next support level in the 1.2860-70s we feel. Theresa May will face her critics and the no-confidence vote rumors today when she attends the 1922 Committee meeting of Conservative back-benchers in Parliament. To say the mood is sour for GBP right now is an understatement.
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AUDUSD: The Aussie is surprisingly bid this morning, as the market appears to be taking its cue from the sharp bounce back in US equities yesterday. The Shanghai nudged higher today and the Nikkei stabilized. Copper also spiked higher in late Asian trade last night, which saw AUDUSD briefly trade above the 0.7100 handle. We’re seeing some backing and filling now as copper gives up its gains, but AUDUSD continues to hold the 0.7080-90s (the level which it broke below yesterday but regained). We think the Aussie can stem further losses should this level hold, but we’re not getting any help from EURUSD or copper at the moment. Watch US equities today.
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USDJPY: Dollar/yen has snapped back strongly over the last 24hrs as traders defended chart support in the 111.90s during the worst of the equity sell off yesterday. The subsequent bounce in the S&P futures back above 2740 then ignited a fierce rally in USDJPY all the way back above chart resistance in the 112.30s. This move created a somewhat bullish NY close, which can sort of explain the continued strength we’ve seen in overnight price action today. The momentum seems to be running out a steam now though as US equity futures struggle ahead of the cash open and EURJPY traders think about new monthly lows. We think USDJPY now trades with a range-bound to upward tone.
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About the Author
Exchange Bank of Canada (EBC) is a Schedule 1 bank based in Toronto, Canada. EBC specializes in foreign exchange services and international payments providing a wide range of services to financial institutions and corporations, including banknote foreign currency exchange, travelers' cheques, foreign currency cheque clearing, foreign currency bank drafts, Global EFT and international wire transfers through the use of EBC's innovative EBCFX web-based FX software www.ebcfx.com.