Preview, options and levels

Tomorrow will see BOC’s interest rate decision and their quarterly Monetary Policy Report coming out at 14:00 gmt. Expectations for a rate hike from 1.25% to 1.5% stand only at 20% for this month, which leaves room for a surprise already on the decision now Nafta seems to be heading for a deal and pressures on CAD are diminishing on the economic and oil front too. In my opinion, it’s likely we get a standstill this time but the statement will comprise a serious hint for a rise in May,

The market, as ourselves in our trading room, has been trading the diminishing Nafta premium already, CAD strengthening across the board in the past weeks. In case of a rate stand still and a neutral report,I’d expect the effect on CAD to be muted as a lot’s been corrected. The other options are a hawkish report or a rate hike which should give CAD the possibility to shine once more, even though the market has been trading well above the 20% likelihood if we look at the past 2 sessions imho.
At 15:15 gmt we will hear from Poloz and Wilkins in the press conference, who traditionally like to spice things up a bit more.

Warning: Since the BOC decision will hit the wires bang on the option expiry time we could see pre-decision attraction to take USDCAD close to 1.2600 as the DTCC data are showing 2.6 Bln $ options expiring at 1.2585-00 at the time. If that would be the case, the BOC announcement would come into a total vacuum left after the expiries, hence we could see a wilder move than may be anticipated. Be careful about this! 

Levels I’ll be watching (beyond option strike considerations) for initial holds or breaks are the bottom of the Daily Cloud+ 200DMA around 1.2625 topside, and if we get a hawkish surprise 1.2455, the 76.4% fib of the Jan-March rise to the downside. Having been long CAD for a while, I don’t have any position on in CAD going into the decision. I’m more neutral for now and will probably rather fade than momentum trade unless we get an effective rate hike.

USDCAD D1 17.04.2018


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