Intraday Market Thoughts

Crowded in the Hawk’s Nest

by Adam Button
Jun 29, 2017 11:23

Carney and Poloz dropped fresh hawkish hints to spark big moves on Wednesday while the ECB failed to damped expectations. The Canadian dollar was the top performer while the US dollar lagged. US jobless claims are next and their latest 4-week moving average is at 245K, the highest since April.  The Premium GBPUSD long was closed for 205 pips, more importantly what's next? 2 Charts were added.

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Central banks are on the march. On Tuesday Draghi sent the euro soaring more than 150 pips, then it was Carney and Poloz with the follow-up on Wednesday.

In a presentation, Carney said continue to send confusing signals. In last week's Mansion House speech he dampened hike talk but he rekindled it today by saying some removal of stimulus is likely to become necessary in the coming months. A bunch of conditions and qualifiers were attached but the market only focused on the headlines and cable jumped more than 100 pips to as high as 1.2972 before it got jittery ahead of the big figure and peeled back to 1.2925.

At the same time, the ECB was trying unwind euro gains after yesterday's comments from Draghi. He said some factors restraining inflation were likely temporary and that was all it took to send the euro higher. Those gains were continuing Wednesday until two separate reports citing ECB sources said the market had misinterpreted his meaning. That sent the euro 75 pips lower in a flash but in a clear sign that sentient has shifted, the dip was completely erased inside two hours as the 1.1190 support held comfortably.

On net, the ECB and BOE signals were subtle and may speak more to the market's bias towards buying EUR and GBP (and selling USD and JPY) than to a genuine change.

That's not the case with CAD. The market was dead wrong on the Canadian dollar and Poloz. A more than 60% chance of a July hike is now priced in and the BOC isn't trying to dissuade the market. Poloz spoke to CNBC Europe and said lower interest rates “have done their job”. That was in the context of the market already pricing in a high chance of a cut.

You have to assume that Poloz knew the odds going in and would have dialed back the rhetoric if he wasn't seriously thinking about a hike. USD/CAD certainly noticed and tumbled to the lowest since February. It was helped along by another 1.5% gain in oil.

In total, central banks are certainly feeling better about growth despite soggy inflation numbers.


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