The market is hedging against a hike

The BOC has a 41.2% chance to hike rates to 1% from 0.75%. The odds are skewed to unchanged but not by much. Eamonn has a great post that outlines the pros and cons (click HERE).

Technically, the CAD trades near the highs for the year (low for USDCAD). Yesterday the low reached 1.23349. That took out last week's low at 1.2339. The failure to run suggests some apprehension. PS the lows printed were the lowest levels since the end of June 2015.

Looking at the weekly chart above, the pair's push to lows recenly has taken the price below the 200 week MA (green line in the chart above). That MA comes in at 1.2432. We currently trade at 1.2404. A move above that level (on a no change announcement) should solicit more buying. Sticking to the weekly chart, a move above the 200 week moving average has another key target not far away. The swing low price from 2016 came in at 1.2460. Needless to say,.a continuation run through that level would likely attract more buying. Those are two key levels to the upside.

On the downside, a move lower would likely imply a hike in rates. It they do hike, that should solicit more selling in the USDCAD as the market starts to think the BOC is definitely on a tightening track. Sticking on the weekly chart, there is not a lot of support until the 50% at 1.21608. That is unlikely today, but we could see a move toward that area over time.

Drilling down to the hourly chart below, the low yesterday retested an old trend line and found buyers. That lower trend line cuts across currently at the 1.2322 level. A move below that level (and staying below), is a sell. That line will become a line in the sand to stay below if broken.

On the topside (no hike), in addition to the 200 week MA at 1.2432, and the 1.2460 swing low from 2016, the 200 hour MA come in at 1.24728 and the 50% of the move down from last week's high comes in at 1.24985 (call it 1.2500). Those are some key steps to get above on a bullish run higher in the pair.

Risk is high for the decision. Will they or won't they? When there is a near 50% chance, that can lead to volatile moves. Thankfully, there are some key levels that traders can hang a hat on - especially on a move higher. To the downside, we are trading into a bit of a black hole (being at 2 plus year lows). However, to go there would imply a hike and that could lead to the next trend leg lower. So break and go.