This week will bring important announcement from Canada. After Reserve Bank of Australia raised interest rates couple of weeks ago, surprising observers, everybody awaits decisions by other central banks with anticipation. Some of them are expected, or at least deemed more likely, to follow RBA’s lead. This applies chiefly to the so called commodity currencies. With the demand and prices for  raw goods around the world soaring once again, there are warnings about inflationary pressures in countries most susceptible to these changes.  That’s what happened in Australia. Canada is another candidate, especially when combined with other monetary indicators.

Canadian Dollar has been getting stronger most of the year. With United States being biggest trading partner, relationship of CAD and USD is of  particular importance to Canadian banking authorities. Time and time again they have warned that strong Loonie put their economy at competitive disadvantage and even went as far as to hint at possible intervention. Nothing came of these threats to date, but just last week Canadian Dollar staged another strong performance against USD, bringing the exchange rate down to about 1.0200. This is getting very close to parity, level at which markets expect BoC to become more active and  prove they are more than talking heads without teeth.

Bank of Canada makes its scheduled interest rate announcement on Tuesday, followed two days later by its Monetary Policy Report. They will have a difficult decision to make. Any rates increase would probably push CAD even higher, something they want to avoid. On the other hand, some areas of the economy maybe creating inflationary dangers. For example, with rising oil prices, job market maybe overheating in Alberta. Booming economy creates shortage of candidates for civil servant jobs. Edmonton Police department is recruiting in… USA. They just had a booth during Seattle Job Fair.

I’m not going to be predicting what BoC is going to do, or how markets will react to it. General sentiment is that they will do nothing, only increase the level of intervention threat . But that’s what was expected before RBA decision as well. Nonetheless, it is an economic highlight of the week, as far as I’m concerned. I’ll be watching news with interest.

Opening was not particularly impressive. Not much truly interesting happened. This includes EUR-GBP cross, so heavily covered in last post. Updates will be written when warranted. For now it looks that currency pairs are building consolidation zones on most 1H and 4H charts, giving little reasons to enter any positions using these time frames. I’m looking at GBP-CHF 4H chart, which is slowly changing direction. It has not been decided yet, Pound-Swissy is still testing both ways, but if GBP recovery is for real, it would go higher. Buy order was placed at 1.6742  with 1.7000 objective. This is not what I see as an easy trade. Even if order is triggered, price can easily pull back to within congestion zone and, given time frame used, stay there for days, maybe week or two. Another strong resistance is looming at 1.6850. However, once these risks and shortcomings are understood and accepted, this could be a decent trade. Just not a very quick one.

Mike K.