Will Bank of Canada Trigger Breakout in USDCAD? | DZHI - DZH International 

Will Bank of Canada Trigger Breakout in USDCAD?

  • Kathy Lien
  • 4 December 2019

Will Bank of Canada Trigger Breakout in USDCAD?


Daily FX Market Roundup 12.03.19


By Kathy Lien, Managing Director of FX Strategy for BK Asset Management


November was a great month for the US dollar but December is proving to be a challenging one.We are only 2 trading days into the new month, but President Trump is back to his old ways with the market reacting to all of the elusive comments coming out of the White House. On Monday, he called for lower interest rates and criticized the strong dollar. On Tuesday, an avalanche of headlines hit the wires suggesting that trades talks are going nowhere. While Trump keeps on emphasizing that China wants a deal, everyone from Commerce Secretary Ross to Vice President Pence have implied that the bar is high because Trump won't allow China to take advantage of US with the wrong deal. The President himself openly mused that it may be better to wait until after the November election to make deal. Fox news went on to say their sources indicate that the tariffs will be increased on December 15th. Of course, none of this has been confirmed but today's comments from Trump and White House officials indicates that trade talks are not going well. The Fox headline could be the Trump's Administration's way of preparing the markets for the possibility of new tariffs. So at the end of the day, even as non-farm payrolls come into focus, in the near term, nothing matters more to the direction of currencies than the decision on tariffs. ADP and non-manufacturing ISM are scheduled for release tomorrow - weaker numbers will have a greater impact on the greenback than strong ones as they would reinforce risk aversion.


The Bank of Canada also has a monetary policy meeting that could trigger a breakout in USD/CAD.For the past 2 weeks, USD/CAD has been confined in a tight range and while no changes are expected from the central bank, Governor Poloz's speech will be watched closely. When the BoC met in October, they set a bottom in USD/CAD when they said the "resilience of Canada's economy, will be increasingly tested." They saw the outlook weakening since July with trade conflicts likely to cause business investments and exports to shrink in the second half of the year. However last month, Governor Poloz squashed expectations for easing when he described "monetary policy conditions as just right." Data since Octoberhas been mixed. Retail sales improved slightly, inflationary pressures remained stable but labor market, housing and manufacturing activity weakened. Canada's labor market is strong but it finally peaked and the worry is that this will carry over to the rest of the economy. If Governor Poloz focuses on the risks, USD/CAD could break through 1.3350 easily but if he emphasizes the appropriateness of current policy, USD/CAD should sink below 1.3250.



The Australian dollar traded sharply higher after the Reserve Bank left monetary policy unchanged.Despite recent weakness in Australian data, the monetary policy statement highlighted the improvements in the property market and the central bank's view that the "easing of monetary policy this year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range" which confirms our view that the RBA is in no rush to ease again. The New Zealand dollar also extended its gains despite a decline in dairy prices.


Euro rallied for the fourth day in a row but with EU becoming the subject of trade comments from Trump, investors should also keep a close eye on the currency.Trump believes that the EU and France in particular has treated the US unfairly on trade, but he said today "we will probably work it out on trade." Conflicting like these is the exact reason why the EUR/USD will be particularly sensitive to EU-US trade headlines. Revisions to EZ service sector PMIs are also scheduled for release tomorrow and if there are upward revisions like manufacturing PMI, it could help EUR/USD test 1.11.



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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.