U.S. Session Forex Recap – Oct. 20, 2016

  • BOC kept interest rates on hold at 0.50% as expected
  • BOC Governor Poloz: Policymakers discussed the idea of more stimulus
  • BOC projects continued weakness in export activity
  • BOC lowered growth forecast from 1.3% to 1.1% this year
  • U.S. crude oil inventories down by 5.2 million barrels
  • U.S. building permits up from 1.15M to 1.23M vs. 1.17M forecast
  • U.S. housing starts down from 1.15M to 1.05M vs. 1.18M forecast
  • EU official Weber urges negotiations to be ‘extremely tough’ on U.K.
  • Weber: British gov’t is arrogant, U.K. faces ‘disaster’ from Brexit

The Loonie stole the forex show when the BOC made its interest rate statement while the euro and pound tumbled on “hard Brexit” expectations.

Major Events:

BOC interest rate decision – As expected, the Bank of Canada kept interest rates unchanged at 0.50% during this week’s policy statement. However, a notable shift in bias was seen as Governor Poloz admitted that policymakers actively discussed the idea of doling out more stimulus.

The main reason for their dovish tone is that export activity has been very weak and could continue to lag in the coming months, prompting the central bank to lower their growth forecast from 1.3% to 1.1% for this year. While Poloz mentioned that they’re still banking on the government’s fiscal measures to help shore up growth, he outlined a number of uncertainties to their outlook, including potential effects of the U.S. elections on business confidence.

Hard talk from EU official Weber – Fears of a “hard Brexit” were revived after EU official Manfred Weber was quoted saying that Brussels is committed to being extremely tough on the U.K. during Brexit negotiations. This underscores French President Hollande’s earlier remarks on reminding the U.K. that leaving the EU bloc comes at a price, which was seen as one of the factors that spurred the GBP flash crash a few days back.

Weber added that the British government’s attitude is one of arrogance and that the U.K. faces ‘disaster’ from this populist Brexit approach that the UKIP has been pushing for. He threw shade particularly on Boris Johnson and UKIP leader Nigel Farage for creating a “catastrophe” that will cause “great damage for both sides.” Keep in mind that Weber does carry a bit of influence in the political scene since he is the leader of Chancellor Merkel’s Christian Democrats party in parliament.

Major Market Movers:

CAD – The Loonie initially rallied on the surprise draw in crude oil stockpiles but reversed its gains when the BOC shifted to a more dovish stance.

USD/CAD dipped to a low of 1.3006 then scurried back up to 1.3141, CAD/JPY rallied to a high of 79.42 then retreated to 78.87, EUR/CAD fell to 1.4265 then popped up to the 1.4400 handle, GBP/CAD found support near the 1.6000 handle then climbed to 1.6150.

EUR – The euro was mostly weaker as Weber’s comments seemed to do more damage on the shared currency rather than the pound.

EUR/USD slipped from 1.0985 to a low of 1.0954, EUR/JPY is down from 113.67 to a low of 113.12, EUR/GBP slid from .8934 to a low of .8906 before bouncing back, EUR/AUD is down to a low of 1.4188, and EUR/NZD dropped to a low of 1.5131.

Watch Out For:

  • 12:30 am GMT: Australia’s employment report (15.2K expected, -8.6K previous)
  • 12:30 am GMT: Australia NAB business confidence index

See also:

London Session Recap

Asian Session Recap

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