USD Weakness Runs into BoC, ECB Rate Decisions

- In this webinar, we used price action to look at macro markets ahead of two key rate decisions from the Bank of Canada on Wednesday and the European Central Bank on Thursday.

- The first market we looked at was the U.S. Dollar via ‘DXY’ after last Friday’s NFP report. The Dollar had put in a bullish move after setting a fresh 2.5 year low last week, and as we walked into NFP, support had held around the 50% retracement of that move. But another disappointing jobs report was unable to hold-up USD, and prices broke-lower after payrolls were released. It was the thirty minutes after that that were very interesting, however, as prices moved-higher and held support as we moved into the weekend. The fact that the net response after that disappointing NFP print was USD-strength highlights how incredibly oversold the Dollar has become; and that USD-bears may want to be very careful as to where they take on USD exposure.

- We then looked at USD/CAD ahead of tomorrow’s rate decision. There is a legitimate chance of a rate hike tomorrow after the BoC hiked rates in July for the first time in seven years. We had looked at USD/CAD being a bull trap ahead of last week’s NFP report, with focus on a long-term support trend-line for a deeper low. That support trend-line came into play around NFP, and a recurrent test to open this week keeps interest around this level. This opens the possibility of topside plays in the pair.

- We then moved over to EUR/USD, with the European Central Bank hosting a vitally-important rate decision on Thursday. Many are expecting the ECB to finally provide some element of clarity with what the bank wants to do with stimulus. In recent weeks, we’ve heard from ECB ‘sources’ that have indicated that the ECB may try to kick the can on stimulus exit, for fear that any such announcements would strengthen the Euro. Mario Draghi has been fairly clear with his dovish posture, and it would not be surprising to see some type of strategy designed to prevent or stem a rampant run of strength in the single currency.

- We then looked at GBP/USD, which is putting in some strength even with an absence of bullish drivers. The Repeal Bill goes to parliament on Thursday, and this could be giving traders reasons to tighten up bearish GBP exposure. Mark Carney has been fairly clear around the BoE’s dovish stance, and that is unlikely to change until more confirmed data around inflation is seen; and this can keep the British Pound in a vulnerable spot that makes the currency attractive when paired up with a stronger currency.

- USD/JPY continues to test longer-term support in the zone that runs from 108.08-108.83. This can be an excellent proxy for the overall theme of USD-weakness along with risk aversion around the North Korea scenario. Should the situation around North Korea continue to develop, this could keep the Yen strong, and eventually that support zone could give way. But under this scenario, Yen strength may be a bit more attractive elsewhere, such as against the British Pound.

- GBP/CAD is working on a morning star formation on the daily chart. This could be an interesting CAD-fade play for those expecting CAD-weakness if BoC does not hike rates tomorrow.

- EUR/CAD – two very strong currencies matched up together. Near an interesting support zone in the middle of the longer-term major move.

- AUD/NZD – Higher low support after a bullish breakout, looking for continuation. The zone around 1.0850 is very interesting.

- AUD/USD – Having difficulty holding above .8000. A print of a fresh high beyond .8066 opens the door for bullish continuation, but until that happens, the potential for reversal remains.

- NZD/USD – Giving the appearance of trend shift. Looking for a lower-high on the daily/four-hour charts for bearish continuation.
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