06.03.2019 Bank of Canada preview.
In short, there should be no change in monetary policy, the current conditions are expected roughly balanced between a good job market and the weaker GDP . But that’s where it ends. Where we had an upbeat picture painted by Poloz and crew last time around, calling for gradual normalisation, some indicators have changed. A much weaker GDP and especially geo- and local politics.
Trudeau is tangled up, rightly or wrongly, in the SNC affair. At the same time tensions with China over the detained Canadians vs Huawei are causing increasing trade disruptions, latest the canola imports.
I expect the BoC report to be a little more neutral without changing to much to the previous wording but Poloz and his crew (no press conf planned) to point to the risks in play, growth risks due to trade especially, avoiding to comment on national affair. In that respect, ultra bears may be a little disappointed but we have seen that minor shifts can create pretty decent waves.
Last point is that oil seems to have found, if not a top, at least a breathing area. Opec and mates are still pushing and pulling to keep the rally going but specs are long and providing liquidity at these levels the price action suggests.
What’s in it for us traders then?I’m bearish CAD at the moment. Our readers will know I’m long smaller USDCAD from the GDP data last week at 1.3220. We had successive breaks of the 1.3230, 1.3250/60 and 1.3310 levels, trading very close to the 1.3383 fib writing this. In the process we’ve broken through the neckline of the past month’s H&S formation also around 1.3300/10.
That is going to be the first level of major support. IF Poloz and co disappoints the CAD bears, me included, I have placed my initial stop at 1.3290. One because the 1.3300/10 is a decent level, if broken there may be an opportunity to get back in lower towards low 1.32s or even 1.3180 and two to guarantee some profit on the initial position. I will give up the short term bearish CAD outlook if we break and hold back below 1.3130.
Topside this fib is really too close to stop anything in a volatile currency that is CAD. If the opportunity presents itself I will try to buy a break if BoC doesn’t surprise on the hawkish side but beating the algo’s is going to be tough. Assuming that I miss that add-on to my longs, I’ll monitor the 6.Dec intermediate top to give me a clue to push for more or not. Ultimately, if things go according to plan, I’m looking to take profit at the measured target of the H&S at 1.3593( arrows) or even leave a slice open for the last day of 2018 fixing high around 1.3660.
Stay safe and happy hunting
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