Euro at the highs ahead of the ECB decision, with speculation of a possible surprise announcement to taper asset purchases. The Bank of Canada's decision to taper and hint at an earlier rate hike is a crack in the global central banking consensus. The surprise move was a big boost to the Canadian dollar--biggest percentage daily gain in 11 months. The ECB is up next. Announcement at 12:45 pm London, followed by the press conference 45 mins later. Traders should expect lack of unanimity regarding the decision, during and after the press conference. 

As we warned here, the Bank of Canada dialed back QE to $3B/week from $4B/week and brought forward the timeline for when the output gap closes to 2022, which is another way of saying that's when they plan to hike.

The market was not expecting that and what was a true surprise is that BOC Governor Macklem didn't temper the moves with any anti-CAD jawboning or strong caution. There was nothing like a dovish taper. Instead, the BOC boosted its Canadian GDP forecast to 6.5% this year from 4.0% and increased 2022 as well, while also raising the global growth view.

At one point, USD/CAD had fallen 200 pips from pre-announcement levels. The market got caught leaning the wrong and the pair went from a one-month high to a one-month low in 70 minutes. There was a modest bounce late to put the pair back at 1.25000 but the spot to watch now is the 1.2470-60 support zone for further follow through. The positive risk tone the emerged Wednesday will help but the loonie might need some help from commodity prices.

In the bigger picture, the turn in central banking has arrived. The ECB decision is up next and that might include a hint (or commitment) to its own tapering in June when the latest forecasts are published. Eurozone data has far outpaced estimates over the past two months as the economy shrugged off lockdowns.

In the ECB's case though it will be seen as more of a technical move or unwind of the extra buying announced in early March following the bond tantrum.

The market will also be watching the Fed, RBA, and BoE to see who follows Canada. While this is a crack in the dam, it will break when one or two of those follow. When that happens, volatility in FX will dramatically increase.

The pandemic led to the most-aggressive deployment of monetary policy in history but its success means it's already time for withdrawal, something that will begin with the Bank of Canada on Wednesday. The loonie lagged Tuesday ahead of the decision while the yen led the way as risk aversion struck.  Canadian CPI came in under expectations, lifting USDCAD to new session highs of 1.2650s. The crucial BoC decision is next. Watch the 100-DMA in USDCAD @ 1.2670. 

In just over one year, the Bank of Canada has accumulated more than 40% of government bonds outstanding. Even for a challenge like covid-19, the pace of bond buying has been too fast. In November, Macklem made the first move to slow purchases but combined it with a duration extension and successfully finessed it as a technical move.

In Wednesday's decision there is likely to be a true taper to $3B/week from $4B. Such a shift isn't entirely expected and they could wait a bit longer but the central bank has backed itself into a corner. Macklem said that owning more than 50% of outstanding bonds could affect market functioning and even a taper to $3B will put them over that limit in months.

A shift is also entirely justified by the fundamentals. New forecasts for GDP growth this year are likely to be boosted to 6% from 4% even with the latest lockdowns. On top of that commodity prices are high, the reopening timeline is moving forward, this week's Federal budget is stimulative, home prices are sizzling, global growth has been resilient and US stimulus will spillover.

In spite of all that, the consensus view is that Macklem will try to engineer a 'dovish taper' by jawboning on the loonie or moving the goalposts on the output gap to by pledging an inflation overshoot.

Both those things may happen but actions speak louder than words and a taper puts the BOC on the path to tightening.

USD/CAD hit 1.26 in a retracement this week on broader risk aversion but there's plenty to like about the loonie once markets settle.

The BOC decision is at 1400 GMT with a press conference an hour later. Also note that Canadian CPI will be released at 1230 GMT and with headline and two-thirds of the core measures expected above 2%, risks are towards something that could make the BOC think about earlier tightening.

The pandemic led to the most-aggressive deployment of monetary policy in history but its success means it's already time for withdrawal, something that will begin with the Bank of Canada on Wednesday. The loonie lagged Tuesday ahead of the decision while the yen led the way as risk aversion struck.  Canadian CPI came in under expectations, lifting USDCAD to new session highs of 1.2650s. The crucial BoC decision is next. Watch the 100-DMA in USDCAD @ 1.2670. 

In just over one year, the Bank of Canada has accumulated more than 40% of government bonds outstanding. Even for a challenge like covid-19, the pace of bond buying has been too fast. In November, Macklem made the first move to slow purchases but combined it with a duration extension and successfully finessed it as a technical move.

In Wednesday's decision there is likely to be a true taper to $3B/week from $4B. Such a shift isn't entirely expected and they could wait a bit longer but the central bank has backed itself into a corner. Macklem said that owning more than 50% of outstanding bonds could affect market functioning and even a taper to $3B will put them over that limit in months.

A shift is also entirely justified by the fundamentals. New forecasts for GDP growth this year are likely to be boosted to 6% from 4% even with the latest lockdowns. On top of that commodity prices are high, the reopening timeline is moving forward, this week's Federal budget is stimulative, home prices are sizzling, global growth has been resilient and US stimulus will spillover.

In spite of all that, the consensus view is that Macklem will try to engineer a 'dovish taper' by jawboning on the loonie or moving the goalposts on the output gap to by pledging an inflation overshoot.

Both those things may happen but actions speak louder than words and a taper puts the BOC on the path to tightening.

USD/CAD hit 1.26 in a retracement this week on broader risk aversion but there's plenty to like about the loonie once markets settle.

The BOC decision is at 1400 GMT with a press conference an hour later. Also note that Canadian CPI will be released at 1230 GMT and with headline and two-thirds of the core measures expected above 2%, risks are towards something that could make the BOC think about earlier tightening.

Another day of mixed movements in the US dollar. The greenback slumped to start the week but with the larger picture remaining murky, it's a good time to compare markets. GBP is today the weakest after testing $1.40 earlier, NZD and AUD are the strongest.  Another day of EURUSD resisting the selloff in US indices. Ashraf warns the WhatsApp Broadcast Group of the impending 100-DMAs in 2 key USD pairs, while US crude oil transforming its daily candle to a possible gravestone doji at the 63.50s right shoulder. One of the charts below was suggested to the WhatsApp Broadcast Group for a possible long after having respected a key MA. Guess what it is.

The past month has included a series of sideways moves in a number risk barometers. In FX, AUD/USD and CAD/JPY have been good examples.

At the same time, the most risk-sensitive asset of all – equities – have been making new highs day after day. In the bond market, the yields have retraced but it's tough to disentangle that from the inflation debate. Finally, commodity prices have been mixed with things like lumber continuing to soar while copper and oil remain in recent ranges.

The theme for the year remains reopening enthusiasm but in the past month, the rise in cases globally is a setback along with vaccine hiccups. There have been some good recent signs in the breaks higher in AUD/USD but yen crosses continue to move sideways in general and CAD/JPY is threatening the bottom of the one-month range.

What comes next may come down to central banks. The ECB and BOC this week are spots to watch for tapering hints (or in the BOC's case, the possibility of outright tapering). The latest Canadian budget included $101B of fresh spending and a huge deficit with no slowing in employment support programs until September. However the loonie stumbled after hitting a one-month high early in the day.