Big time volatility for the Loonie after the Bank of Canada monetary policy statement. Will the momentum in EUR/CAD continue?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on USD/CAD ahead of the latest monetary policy decision from the Bank of Canada, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
- Bank of Canada Holds Rates, Signals Less Confidence in Outlook
- Bank of Canada maintains overnight rate target at 1.75%
- China virus deaths rise to 17, heightening global alarm
- U.S. existing home sales surge to near two-year high
- Trump says GDP would be near 4% and the Dow could be 10,000 points higher if it weren’t for the Fed
- UK public sector borrowing increases by £4.0B y/y in December
- UK manufacturing business optimism improves at the strongest pace since 2014 – CBI
- Trump threatens big tariffs on car imports from EU if no trade deal struck: CNBC
Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:
- API Crude oil stock change at 9:30 pm GMT
- Japan Trade balance & Foreign investment at 11:50 pm GMT
- Australia Consumer inflation expectations at 12:00 am GMT (Jan. 23)
- Australia Employment update at 12:30 am GMT (Jan. 23)
- Japan All Industry activity index at 4:30 am GMT (Jan. 23)
- Japan Leading Economic index at 5:00 am GMT (Jan. 23)
What to Watch: EUR/CAD
The Canadian dollar was slammed on the session thanks to the latest monetary policy statement from the Bank of Canada. While they did hold interest rates at 1.75%, they also were significantly more bearish than expected on the economic outlook. Even so the odds of Canada going into recession are still very low, but it’s definitely a different picture than Canada’s relatively strong 2019 performance, which is likely why we saw the bearish spike in Loonie pairs.
This quick reaction took many pairs to technical areas of interest, including EUR/CAD. Ahead of the event the pair was testing a major support area around the 1.4450 handle, before jumping higher on the event well over its daily ATR of around 60 pips to 1.4550. It’s nearing a previous area of interest around the 1.4570 handle that traded as both support and resistance in December and January, making it a great area to watch for both the bulls and the bears.
If you’re a bull on EUR/CAD and believe we’ll continue to see momentum, going long from current levels down to 1.4500 is a viable entry strategy as it’s likely any pullback during the U.S. session will continue to draw in short-term traders. For those looking at a swing trade, waiting for a break-and-support patterns around the 1.4570 handle is something to watch out for before considering going long.
If you’re a bear on EUR/CAD, likely on the idea that longer-term Canada will out perform Europe and/or the interest carry favoring the Loonie will draw in sellers, waiting for a retest and reversal patterns at the 1.4570 handle is probably the best signal at the moment before considering a short position.