Central Bank Action – Rates Expectation and Charts

With RBA cutting rate as expected, what else can we look out for in the upcoming days? Below is the calendar scheduled for various Central Banks:

Dec 4th 9:00am CAD Overnight Rate – Expectations: Maintain rate at 1.00%
Dec 5th 3:00pm NZD Official Cash Rate – Expectations: Maintain rate at 2.50%
Dec 6th 7:00am GBP Official Bank Rate + Asset Purchase Facility Target
– Expectations: Maintain rate at 0.50%, no increment in APF
Dec 6th 7:45am EUR Minimum Bid Rate – Expectations: Maintain rate at 0.75%

(time quoted EST, -5 GMT)

USD/CAD Daily Chart

Canadian GDP grew at a slower pace, lower than market’s expectation, giving BoC reason to cut rates to stimulate its economy. This was the same situation 1 month ago, but BoC held firm, keeping rates with a hawkish tone. Even though BoC is widely expected to maintain rates later today, watch out for any dovish wording in the announcement that could hint BoC’s action after Carney’s departure. Perpetual hawkish tone may result in 0.995 resistance holding, and a return to bearish momentum as the rising channel is invalidated.

NZD/USD Daily Chart

After hitting record highs, Kiwi is still looking strong with the rising trendline keeping downward movement in check. However, short term bearish momentum is also building, with Kiwi posting lower highs with each rally. Current price levels are hurting exporters greatly. Q3 unemployment rate has also reached 7.3%, the first time since the crisis recovery period, Retail Sales in Oct has also shrunk, giving more incentive for RBNZ to cut rates . A surprise cut may push price close to the rising trendline, but bullishness may still remain as traders continue to find positive carry holding NZD. On the other hand, inflation concerns which plagues RBA is also affecting RBNZ, which may sway decision makers against rates cuts.

GBP/USD Daily Chart

The previous 3 times BoE expanded of APF’s target were –   July ’12, Feb ’12 and Oct ’11 each separated by 4-5 months in between. As we approach December, if BoE has any intention to ease, we could be near. Based on the latest BoE meeting minutes, the vote for easing expansion stood at 1 for 8 against, slightly better than the previous one which stood at 0-9. Is there any good reason to ease? UK data has been mixed, but Q3 GDP data was a big encouragement, with Cameron barely able to contain himself from leaking the good news before the actual announcement is scheduled to release. King’s latest statement paints a different picture, saying GDP figures have “masked an underlying picture of stagnant output”. Inflation has fallen sharply, giving BoE room for further easing if needed.

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EUR/USD Daily Chart

ECB is not expected to slash rates anymore, as such cuts have lost its effectiveness in resolving the current Greek/Spain crisis. What they are facing is not a case of liquidity, but rather simple fiscal issue of crippling debt in its member states aka spending more than what you have. What the market will look out for is any short-term solution Draghi may offer to ease the situation during this announcement. Expectations for such occurrence is low due to the fact that ECB’s previous big announcement – OMT, has not been utilized. Draghi is expected to go on with the usual bullish rhetoric that may be most likely ignored. Draghi has perhaps been the most positive speaker Europe can offer right now, and any hint of pessimism may cause EUR/USD to fall.

From a technical perspective, EUR/USD has shrugged off a false break out recently, with price trading above the previous sell signal (evening star) after a shooting star has been formed. All this point to strong bullish momentum, which is once again confirmed as EUR/USD broke 1.30 resistance just a couple of days ago. However, there appear to be overhead resistance in the form of downward sloping trendline. Though this ECB announcement may turn out to be a non-event, how price react to 1.30 or the looming resistance may shape up the trend for the rest of December.

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