Top FX Headlines: USD/CAD Looks to BOC to Catalyze Range Break

Commentary, Forex, News, Technical Analysis

Talking Points:
– BOC hike odds are below 20% for today, around 35% for January, and above 75% for January. The market may be too dovish; the risk today is for a more hawkish BOC.
– USD/CAD’s two-month range between 1.2665 and 1.2910 looks ready to break to the downside, with a double top target of 1.2420.
– Retail trader sentiment suggests mixed trading conditions in the US Dollar through the first full week of December..
The Canadian Dollar has had a volatile 2017, and much of it has to do with pricing around potential BOC policy decisions. In early-June, there was less than a 10% chance of a rate hike for the rest of 2017. By mid-July, not only had one rate hike actually been priced-in – and the BOC did hike – but a second hike was being priced-in for the end of the year. Eventually, this transpired in September with markets pricing a third hike in for 2017. This hawkish perception proved to be overdone, with the market-implied odds of a BOC hike this week now below 20%.
Looking down the calendar, March 2018 comes in as the most likely period for the next rate hike (75% chance). As such, even if the BOC does not hike this week, expectations are high that they will continue to prep markets for further policy tightening in the months ahead.
Accordingly, a move below range support of 1.2665 would trigger a double top formation (measured between 1.2665 and 1.2910) pointing to an eventual decline towards 1.2420 over the coming weeks.

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