Hike rates

Bank of Canada Snapshot Is the BOC Ready to Raise Rates

The Bank of Canada meets on Wednesday to discuss monetary policy. At its last meeting in December, the Committee left rates unchanged at an all-time low of 0.25% and said it did not expect a rate hike until mid-2022. However, markets are pricing in more than a 60% chance of a rate hike at this meeting.

Inflation remains high. The December print fell from 4.7% yoy to 4.8% yoy, the highest level since September 1991. In the last meeting, the BOC said the high inflation was mainly due to ongoing supply chain issues and although the committee expects inflation to remain high in the first half of 2022, it also expects it to return to its 2% target in the second half of the year.

The labor market has been strong since the December BOC meeting. After adding an outsized +153,700 jobs to the economy in November, Canada followed with an additional 54,000 jobs added to the economy in December, doubling estimates. Jobs were split almost evenly between part-time and full-time. Employment is an issue that the Bank of Canada does not have to concern itself with.

EUR/CAD had been declining throughout the fall of 2021, falling from a high of 1.5098 to a low of 1.4176. The pair then bounced back to the 50% retracement from the September 20 highs.and2021 to November 25 lowsand2021 near 1.4638 on December 20and 2021. Since then, EUR/CAD has fallen and hit a new marginal low on Thursday last week at 1.4100, its lowest level since April 2017.

Source: Tradingview, Pierre X

Notice at the bottom of the daily chart above that EUR/CAD has a strong negative correlation to Crude Oil (similar to USD/CAD). The current correlation coefficient is -0.84. Any reading above +0.80 or below -0.80 is considered a strong correlation. Therefore, traders should be aware that when Crude Oil moves in one direction, EUR/CAD often moves in the opposite direction.

Over a 240-minute period, EUR/CAD attempted to rally above a descending trendline dating back to December 20th.and highs, but failed to hold above. Resistance is at the Monday high, which is also near the December 20th 50% Fibonacci retracement level.and2021 highs to January 20and the lows and the 50-day moving average of 1.4375. Above, there is a confluence of resistance consisting of previous support/resistance near 1.4421 and the 61.8% Fibonacci retracement of the same time frame near 1.4437. It looks wide open from here to long term horizontal resistance at 1.4583 (see daily). Short-term horizontal support is at 1.4268 and 1.4219 before January 20and lower at 1.4100. If the price breaks below this level, the next support is the April 2017 low at 1.4030.

20220124 eurcad 240

Source: Tradingview, Pierre X

Although at the last meeting the Bank of Canada said it was not looking to raise rates until the middle of 2022, the markets disagree. If not at this meeting, watch the wording for when the rate hike might come. Also look for when the BOC might start letting its balance sheet unfold. Either way, there are plenty of opportunities for volatility in the EUR/CAD!