Light Week as Central Banks Stayed Put
Srdan Sore
It was a light week from the economic data point of view in the sense that despite the fact that two of the most important central banks in the world, Bank of Canada (BOC) and Bank of England (BOE) held monetary policy meetings, market barely moved on the releases. Bank of Canada on Wednesday left... Read more
It was a light week from the economic data point of view in the sense that despite the fact that two of the most important central banks in the world, Bank of Canada (BOC) and Bank of England (BOE) held monetary policy meetings, market barely moved on the releases. Bank of Canada on Wednesday left the rates unchanged and it was a move anticipated by market in the sense that it was clear it wasn’t going to be a rate cut or the tone to be dovish as the previous jobs data was extremely hawkish and even the GDP (Gross Domestic Product) surprised to the upside. As a consequence, the USCAD pair did nothing on the release and actually it traveled one hundred pips to the upside in the night following. However, the move seemed to be more related to profit taking rather than BOC monetary policy. We have to remember the USDCAD pair is coming down from above 1.46 around two thousand pips and is it normal for profit taking to kick in. Oil is trading shy above $40 as market participants are waiting for the outcome of the Doha meeting this Sunday when OPEC and non-OPEC members are meeting to discuss a possible freeze in production levels. With inventories building up so fast, it is no wonder levels need to be cut. By how much and what would be the USDCAD reaction we’ll all find out next Monday, when a gap at the opening is almost guaranteed. BOE Kept Everything Steady Bank of England kept rates steady as well as it was wildly expected and as a consequence the GBP kept a relatively small range. Bank of England did not move on rates for quite some time now and many are wondering when the first move and what the direction will be. Inflation in UK surprised to the upside this week and this is one thing for the BOE to take into consideration. However, while the initial reaction was bullish on the GBP, the move was quickly reversed and GBPUSD for example made new lows. This is what ranges mean, and what a ranging market is doing as important economic data is simply ignored. CPI in the United States Disappoints Another important event on the week was the CPI (inflation) data out of the United States as all eyes were on it to see if the Fed will have enough for hiking rates again. It turned out that the data actually missed expectations as even the Core CPI, the favorite way for the Fed to measure inflation ticked lower. Initial market reaction was muted as it was happening at the time this article was being written but, normally the US dollar should be sold on that news. Together with the CPI the unemployment claims were released as well and they reached levels not seen since the 70’s. That being said, the Fed has problems in fulfilling its dual mandate as until inflation ticks up, rate hikes will be only gradual. It is a well-known fact that Mrs. Yellen is really dovish as her last speeches leave little room for interpretation and it may be that “one and done” is the answer when it comes to Fed rate hikes. EURUSD Holds the Key The EURUSD traded with a bearish tone starting with Wednesday as two weeks consolidation range broke to the downside and bulls were taken by surprise by the move. On the fundamental side, the Eurozone inflation has been revised to the upside and this should support the common currency, but market barely reacted on the news. However, despite the fact that Eurozone inflation ticked up while the US one moved to the downside, the pair failed to jump making many wonder what is going on. It seems that the EURUSD is trading in a complex correction on the weekly and daily chart and this makes trading options difficult in the sense that a lot of moves are fake, so should be faded, while the expiration date is difficult to be set. Like the subtitle of this paragraph suggests, the key to these market ranges and behavior is at the EURUSD as unless the pair breaks the ranges on the bigger time frames, these kind of reactions are supposed to continue.

Light Week as Central Banks Stayed Put

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It was a light week from the economic data point of view in the sense that despite the fact that two of the most important central banks in the world, Bank of Canada (BOC) and Bank of England (BOE) held monetary policy meetings, market barely moved on the releases.

Bank of Canada on Wednesday left the rates unchanged and it was a move anticipated by market in the sense that it was clear it wasn’t going to be a rate cut or the tone to be dovish as the previous jobs data was extremely hawkish and even the GDP (Gross Domestic Product) surprised to the upside. As a consequence, the USCAD pair did nothing on the release and actually it traveled one hundred pips to the upside in the night following. However, the move seemed to be more related to profit taking rather than BOC monetary policy. We have to remember the USDCAD pair is coming down from above 1.46 around two thousand pips and is it normal for profit taking to kick in. Oil is trading shy above $40 as market participants are waiting for the outcome of the Doha meeting this Sunday when OPEC and non-OPEC members are meeting to discuss a possible freeze in production levels. With inventories building up so fast, it is no wonder levels need to be cut. By how much and what would be the USDCAD reaction we’ll all find out next Monday, when a gap at the opening is almost guaranteed.

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BOE Kept Everything Steady

Bank of England kept rates steady as well as it was wildly expected and as a consequence the GBP kept a relatively small range. Bank of England did not move on rates for quite some time now and many are wondering when the first move and what the direction will be. Inflation in UK surprised to the upside this week and this is one thing for the BOE to take into consideration. However, while the initial reaction was bullish on the GBP, the move was quickly reversed and GBPUSD for example made new lows.

This is what ranges mean, and what a ranging market is doing as important economic data is simply ignored.

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CPI in the United States Disappoints

Another important event on the week was the CPI (inflation) data out of the United States as all eyes were on it to see if the Fed will have enough for hiking rates again. It turned out that the data actually missed expectations as even the Core CPI, the favorite way for the Fed to measure inflation ticked lower. Initial market reaction was muted as it was happening at the time this article was being written but, normally the US dollar should be sold on that news. Together with the CPI the unemployment claims were released as well and they reached levels not seen since the 70’s. That being said, the Fed has problems in fulfilling its dual mandate as until inflation ticks up, rate hikes will be only gradual. It is a well-known fact that Mrs. Yellen is really dovish as her last speeches leave little room for interpretation and it may be that “one and done” is the answer when it comes to Fed rate hikes.

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EURUSD Holds the Key

The EURUSD traded with a bearish tone starting with Wednesday as two weeks consolidation range broke to the downside and bulls were taken by surprise by the move. On the fundamental side, the Eurozone inflation has been revised to the upside and this should support the common currency, but market barely reacted on the news. However, despite the fact that Eurozone inflation ticked up while the US one moved to the downside, the pair failed to jump making many wonder what is going on.

It seems that the EURUSD is trading in a complex correction on the weekly and daily chart and this makes trading options difficult in the sense that a lot of moves are fake, so should be faded, while the expiration date is difficult to be set. Like the subtitle of this paragraph suggests, the key to these market ranges and behavior is at the EURUSD as unless the pair breaks the ranges on the bigger time frames, these kind of reactions are supposed to continue.

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