Morning Commentary & Currency Insights – January 18, 2018

The DXY remains near its recent lows after posting an outside day yesterday which means it traded above the high & below the low of the previous day’s session.  Technically speaking this often indicates the end of a current trend which, in the DXY’s case, was lower.  With long term trend line support a mere 50 points away it is likely that dollar bulls will be emboldened to press the limits on reversing its recent decline.  This weekend Germany Social Democratic Party delegates will vote whether or not to enter formal coalition talks with the chancellor’s Christian Democratic Union-led bloc.  An impasse here would see the euro plunge.

USD/CAD did not disappoint yesterday as we saw several 100+ point moves within 1-2 minutes of the Bank of Canada announcement as well as a 100+ point move lower over a few hours followed by an 80 point move higher since then.  The main takeaway from the announcement, MPR & subsequent press conference is, while the “economy likely warrants higher rates over time”, the Bank will “remain fully data dependent” and NAFTA uncertainty is “weighing increasingly” on their outlook.  This has resulted in what the market has dubbed a “dovish hike” and a weaker Canadian dollar.  I suspect from here we will follow general market moves in the USD with a bias towards a weaker CAD.