The USD/CAD pair reacted quite calmly to the results of the Bank of Canada's June meeting. However, the Canadian regulator did not provide any clear reasons for increased volatility. The next meeting of the members of the Central Bank was just a check-through and was not marked by any significant decisions or statements. The USD/CAD pair initially reacted to the results of the meeting with a downward impulse, dropping to the middle of the 1.20 mark, but then buyers recovered all the lost positions. In general, the pair remained in the same place where they stayed before the result of the Canadian Central Bank.
In addition, the market saw increased demand for the US currency during the afternoon yesterday. The indicated currency reacted to the rise in the yield of 10-year Treasuries, ahead of the publication of key data on the growth of US inflation. The indicator left the local lows and was marked at 1.501%, allowing dollar bulls to organize a small correction throughout the market, including in a pair with the Canadian dollar. Now, preliminary forecasts for today's release suggest that the US consumer price index will slow down its growth in monthly terms, while it will continue to update multi-year highs in annual terms. Against the background of an almost empty economic calendar, inflation expectations allowed the US currency to show character, although there were no obvious prerequisites for its strengthening.
Nevertheless, the US dollar moves by inertia, using the trading principle of "buy on rumors, sell on facts". At the moment, the first part of this trading principle works, but it is still an open question whether the second part will be implemented. If all the components of the release come out in the "green zone", the national currency will continue to gain momentum, hoping for an increase in the Fed's hawkish mood. The June meeting of which will be held next week, June 15-16. But if the inflation growth in May is not as unambiguous as in April, the reaction of the market will be difficult to predict. Fed members will not be able to comment on the release, as they are required to observe a silence regime ahead of the next meeting. Therefore, traders will form their position on the controversial publication independently. If all the components come out in the "red zone", not reaching the forecast values, the US dollar will definitely be under significant pressure. In this case, the representatives of the "dovish" wing of the Fed will receive an additional argument in favor of their position.
Given such a high degree of uncertainty, it is too risky to go into sales or purchases at the moment and this applies not only to the USD/CAD pair but also to all other dollar pairs. However, if we talk about broader time frames, the priority here remains for short positions. The results of the last meeting of the Bank of Canada made it clear that the Canadian regulator is ready to continue moving towards the normalization of monetary policy, while most members of the Federal Reserve (so far) are lobbying for the idea of maintaining an accommodative policy. Such a de-correlation exerts and will continue to exert background pressure on the Canadian dollar unless the Fed representatives change their position at the June meeting, which is extremely unlikely due to the previous rhetoric of the majority of the US regulator's members.
It can be recalled that the Bank of Canada reduced the volume of the asset repurchase program by 1 billion in April, while revising its forecast regarding the timing of the rate hike. Central Bank's members admitted that such a decision could be made in the second half of next year.
The Canadian regulator maintained the status quo at yesterday's meeting. The accompanying meeting indicated that the Central Bank will continue to implement the QE program, while decisions on its pace and size will be based on the current assessment of the sustainability and strength of the economic recovery.
This phrase describes the key difference between the positions of the Fed and the Central Bank of Canada. The US Federal Reserve voices "dovish" rhetoric, and, accordingly, maintains the policy of monetary stimulus despite the growth of the main indicators of the economy. In turn, the Canadian regulator says that the future prospects for QE will depend on the dynamics of macroeconomic indicators. Thus, some experts believe that the Central Bank of Canada can reduce the volume of weekly asset purchases to $ 2 billion at the next meeting in July if the main indicators are released in the "green zone". According to other analysts, the Central Bank in July only announces such a step but implements it in September.
In any case, the position of the Bank of Canada looks more hawkish compared to the US Federal Reserve, whose most members oppose the early winding down of QE.
Technically, short positions with the first and the main target of 1.1950 (lower line of the Bollinger Bands on the weekly chart) can be considered for the USD/CAD pair. It is important for sellers to break through this target in order to consolidate within the level of 1.19 and indicate further downward prospects. But it is suggested to enter sales when the pair returns below the Bollinger Bands middle line, which coincides with the Tenkan-sen line at D1 (1.2080). In this case, the Ichimoku indicator will form a bearish signal "Line Parade", which will confirm the strength of the decline.