Bank of Canada rate decision and press conference 09.01.2019

No one prices in a rate hike, neither am I. The wording will be the important bit, as is now the norm with every CB. Poloz will have his moment in the spotlight, he loves it,  I wonder how loose his hands will be today 😉
So, my neutral then being: The data are ok with the usual warnings about external risks and housing debt/slowdown, which is now a worldwide phenomenon. Further rate hikes will be data dependent.
A more dovish tone would be explicitly calling for the expected slowdown the market is (over?)pricing now and hinting at a prolonged pause in rate hikes.
The more hawkish approach in turn will be looking through latest wobbles as temporary, trade deals outlook positive, if nothing worsens giving a notch to a possible rate hike in between.

I know there may be 50 shades of Poloz in between but in big lines those are the clues I’ll be looking out for.
CAD has enjoyed a strong comeback since the 2nd Jan FX flash dump, helped by better risk, higher oil and a thorough scaling back of CAD shorts, possibly already swinging into longs. I’ve been sporadically riding the train but for now we’ve reached a more neutral USDCAD level at the 1.3225 fib support.
Who bought it? A mix of players, risk/oil correlations, short covering, but from the start I’ve been suspecting longer term accounts being involved looking at the speed and steady price action over several sessions.They seemingly waited for that 2nd jan accident to enter the arena. I expect these accounts to be waiting now on Poloz to give them a green light to continue with the CAD purchases or to wait for better levels. In that respect my impression is the downside of the CAD to be possibly more limited than the upside if any hawkishness would transpire.
I therefor will be looking to rather fade CAD weakness, call it 1.3330/80 vs USD, than strength, which I would more likely accompany.

As per usual, beware it’s CAD. It can move like an emerging currency, algo’s will be waiting for our mistakes, so get your levels ready and respect the discipline!
Safe travels and happy hunting.

Levels USDCAD I’ll be watching:

-To the downside: 1.3222 (too close but a fib and the top of the daily cloud), 1.3120/25 ( short and longer term fibs, important) , 1.2990 and 1.2945 big target levels.

-To the topside: 1.3325/30 (first serious hurdle, fib+ swing lvls) , 1.3375/80(resist TL), 1.3458( fib, point of no return for the medium term CAD bulls imo).

USD D1 09.01.2019


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