USD/CAD and BOC

Canada’s CORRA or Canada Overnight Repo Rate Average from October 26 to Sept 4 traded 0.2300 to 0.2500 and a 7 day average at 0.2438.

Canada’s OMMFR or Overnight Money Market Finance Rate from October 26 to September 4 traded 0.2317 to 0.2380.
Canada’s main interest rates trade in correct positions as Corra above OMMFR. No Interest rate changes expected and no warnings or problems seen.

Canada’s Monetary Policy targets Inflation and Employment. Canada’s Inflation Control Target is operational for 30 years and has held Canada in good stead. 2% is the middle bound Vs 1 to 3%. July’s 0.1 Inflation reading contains a trimmed mean at 1.7% and median at 1.9%.

Canada’s latest Inflation tool is to trim Inflation means by discarding highest and lowest readings and include an Inflation Median. Changes are slight and doesn’t appear to impinge on the overall Inflation Control Target formula nor its effects.
As Canada is in the process to understand more fully Inflation Averages in relation to its economy and scheduled for a 2021 final release, 2 interesting developments at the July assessment.

if Inflation is low and allowed to run hot, the effects to Employment was negligible. However this issue will be revisited as Inflation and Employment is the BOE mandate.

One researcher and a concept I favor and use for economic indicators is to obtain a simple averrage for all economics, all releases and assess low and high averages. Its a simple concept and quite easy to run data rather than chart a Keynesian Phillips Curve trade off that may or may not work. New Zealand for example contains about 3500 data points to include 10 and 2 year bond yields and Bank Bill interest rates.

To raise or lower interest rates is assessed by Canada using the Output gap.

Canada’s 2020 Output Gap runs currently 0.042 and only Germany beats by 0.258. Remainder nation run negative Output Gaps as follows: Japan, UK, Europe, France, Italy. The United States runs barely negative but is expected to run positive upon the next GDP release.

Expected for 2021 Canada at 0.015, and a closing Gap while Germany, France, Italy and Europe are expected at 0.17, 0.164, 0.037 and 0.104. A positive Output Gap is the overall economic indicator to raise rates.

USD/CAD

The weekly trade we’re currently working on is this for the 2nd and 3rd legs.

2nd and 3rd legs\

Long above 1.3316 to target 1.3506.
Short 1.3262 to target 1.3119

The 1.3262 target achieved at 13258 for +215 pips from 1.3044.

But above is the weekly trade and may not trade today and maybe seen on Thursday or Friday.

Upon the 1.3262 target, USD/CAD traded to 1.3217 lows.

Rather than the weekly trade for the BOC, the day Trade is best. And why is because from 1.3270 to 1.3219 and 1.3115 is a terrible position for USD/CAD to trade the BOC release.

USD/CAD Day Trade

USD/CAD

Long Short Line 1.3251

Most Important 1.3196 and 1.3217 Vs 1.3259, 1.3267, 1.3284, 1.3292, 1.3301, 1.3309 and 1.3318

Bottom. 1.3184 achieves by 1.3217 and 1.3199

Upper target 1.3318

Continuation Fail 1.3285

Break Point 1.3322

Above says this from low to high and factored from interest rates.

1.3184, 1.3196, 1.3199, 1.3217, 1.3259, 1.3267, 1.3284, 13292, 1.3301, 1.3309, 1.3318

Note 1.3309 and 1.3318 converges against the break point at 1.3322.

The object for the BOC release is long bottoms and short tops. Don’t expect the overall range to break as this rarely happens. Its free money if ever rare range breaks happen because the price must trade back to its range by central bank mathematical standards. Not mine but central banks as they devised this day trade system.

What this system says overall is the price doesn’t care one iota to what the BOC reveals. They can talk and babble all day and the price system will hold.

One caveat. The BOC is expected to speak at 10:00 and this price system will then run on ECB standards.

So possible to see a slight adjustments to overall prices yet the same concepts hold, short tops and long bottoms for multiple trades and pips.

 

Brian Twomey