Canadian interest rate decision, the falling USD and the indexes rally

We had a busy week in terms of news and economic releases. The UK CPI and the European CPI were in line with the expectations. The Bank of Canada raised the interest rates. We saw a better than expected building permits in the US. Maybe the biggest surprise on Friday was the UK Retail Sales that show the third-worst figure in the last 5 years. On the other hand, the speculation of the government shut down drove the USD down. Sadly, now it’s official, as it happened yesterday night.

Interest Rate decision

    Source: TradingView, USD/CAD (FXCM), 15 min

As you can image, the CAD went up with the interest rate decision. The market participants expected a hawkish statement considering that the Canadian economic outlook is expected to keep strong and allow to raise the interest rates in the future. Sadly, the BOC showed its dovish side confirming that some monetary accommodation will be needed.

     Source: TradingView, USD/CAD (FXCM), daily

We can see that the USD recovered in the last 2 trading days after the dovish comments of the Bank of Canada and the uncertainty about NAFTA.

US Dollar Index

    Source: TradingView, US Dollar Index, daily

The USD has been falling during the last 3 months while the bond yields have been raising. If we only consider the FED policy, the dollar should be going up. On the other hand, and in my humble opinion, some policies are not coordinated to meet certain economic targets. In addition, some political issues such as the government shut down are reflected on the USD.

Unstoppable Indexes

DAX

    Source: TradingView, DAX future, daily

The Dax is trading on its all-time highs and seems that it´s not going to stop. The European indexes are not as directional as the American indexes. One of the biggest risks, in my opinion, is an expensive euro because this will slow down the trading with other economic areas.  The ECB will hold a meeting next week that will guide the traders about the future economic policy.

FTSE

     Source: TradingView, FTSE future, daily

The FTSE is another example of great performance. The recovery since the Brexit referendum has been incredible. The uncertainty of the possible split up with Europe hasn´t affected the index. It´s true that after the referendum the British Pound fell a lot and helped some funds to take bigger positions in the stock market.

US indexes

S&P 500

     Source: TradingView, SP500 future, daily

     Source: TradingView, Dow Jones future, daily

The last 2 charts are identical. If an investor opened positions in 2013, now he would have doubled his investment. Some of the biggest investments banks have warned their clients about a possible big sell off to take profits. One of the reasons behind this is that these indexes have never been overbought in their history. In addition, we have seen the largest inflows ever in equity funds.  When everyone is buying after the biggest rally ever, it´s better to take profits while we can. If you don’t believe in this theory, ask the bitcoin investors that bought the cryptocurrency at 19000$.

Opinion

We have seen interesting movements this week. Everyone is monitoring the Central Banks statements. We need to focus on the Bank of Japan and the European Central Bank next week. I would like to see how the ECB deals with a strong Euro. I don’t think that the US government shut down will last long. About the stock markets… well, I said before. These things don’t end well.

Have a good trading!!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

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