This week, our forex strategists targeted on the BOC Financial Coverage Assertion for potential high-quality setups.
Out of the 4 state of affairs/worth outlook discussions this week, one dialogue arguably noticed each fundie & technical arguments triggered to turn out to be a possible candidate for a commerce & danger administration overlay.
Watchlists are worth outlook & technique discussions supported by each basic & technical evaluation, a vital step in the direction of making a top quality discretionary commerce concept earlier than engaged on a danger & commerce administration plan.
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Take a look at our evaluation of that dialogue to see what occurred!
CAD/JPY: Tuesday – June 3, 2025
CAD/JPY 1-Hour Foreign exchange Chart by TradingView
On Tuesday, our strategists had their sights set on the BOC financial coverage assertion and its potential affect on the Canadian greenback.
Primarily based on our Occasion Information, expectations had been for the BOC to maintain rates of interest regular at 2.75%, with members repeating their plans to “proceed fastidiously” however “act decisively” if wanted amid ongoing commerce uncertainty.
With these expectations in thoughts, right here’s what we had been pondering:
The “Loonie Carry” Situation:
If the BOC maintained a extra hawkish stance or expressed confidence concerning the financial outlook regardless of commerce headwinds, we anticipated this might enhance CAD. We targeted on CAD/CHF for potential lengthy methods if danger sentiment was internet optimistic, particularly given the SNB’s current dovish stance and Switzerland’s deflation issues.
In a risk-off atmosphere, AUD/CAD shorts regarded promising given Australia’s current dovish RBA assembly minutes and weaker home knowledge.
The “Loonie Lag” Situation:
If the BOC signaled elevated issues about commerce impacts or hinted at potential fee cuts, we thought this might weigh on CAD. We thought of CAD/JPY for potential quick methods in a risk-off atmosphere, notably given the pair’s place close to key resistance ranges and the BOJ’s current dovish commentary about commerce uncertainties.
If danger sentiment stayed optimistic, GBP/CAD lengthy made sense given the Financial institution of England’s extra cautious strategy to fee cuts.
What Truly Occurred
The BOC stored charges regular at 2.75% as anticipated, however the assertion revealed a central financial institution grappling with important uncertainties.
Key factors from the choice:
- Commerce uncertainty stays elevated: Regardless of some moderation in US-China tensions, tariff charges stay nicely above early 2025 ranges, with ongoing threats of latest commerce actions
- Combined financial alerts: Canada’s Q1 GDP development of two.2% barely exceeded forecasts, however was pushed by non permanent elements together with export pull-forward and stock accumulation
- Labor market weakening: Unemployment rose to six.9% in April, with job losses concentrated in trade-intensive sectors
- Inflation pressures combined: Headline CPI fell to 1.7% in April on account of carbon tax elimination, however core measures firmed to 2.3%, barely above Financial institution expectations
Governor Macklem’s press convention revealed a governing council much less unified than in earlier conferences, noting “extra variety of views” relating to future coverage route whereas emphasizing a data-dependent strategy.
Market Response
This final result essentially triggered our CAD bearish eventualities, because the BOC’s cautious tone and acknowledgment of inner coverage debates prompt a central financial institution transferring nearer to easing somewhat than tightening. With danger sentiment leaning impartial to barely adverse across the occasion, CAD/JPY turned our focus.
Wanting on the CAD/JPY chart, we noticed an instantaneous bearish response after the BOC assertion, with the pair dropping from across the 105.25 degree because the central financial institution’s dovish undertones weighed on the Loonie. The pair discovered preliminary help close to the pivot level (104.646) however struggled to regain momentum by the rest of the North American session.
The bearish CAD narrative additionally rapidly shifted as broader market dynamics took over. Regardless of the BOC’s cautious stance, rising oil costs all through the week offered underlying help for the commodity-linked Canadian greenback. Extra importantly, persistent JPY weak point pushed by the Financial institution of Japan’s dovish outlook on commerce uncertainties started to dominate the pair’s route.
By Friday’s shut, CAD/JPY had reversed its preliminary post-BOC losses and climbed towards the R1 resistance degree (105.775), supported by a 6.5% weekly acquire in crude oil costs and broad-based yen promoting that made the forex the worst performer amongst main currencies for the week.
The Verdict
So, how did all of it play out?
Our basic evaluation appropriately anticipated potential CAD weak point on the BOC’s cautious stance, which initially performed out as anticipated. Nonetheless, the technique dialogue was “unlikely” supportive of a internet optimistic final result on account of a number of elements that turned obvious all through the week.
Whereas merchants who entered quick positions instantly after the BOC assertion may have captured some preliminary draw back motion, the execution window was extraordinarily slim. The neutral-to-mixed danger atmosphere and comparatively dovish (however anticipated) BOC final result offered low conviction for sustained CAD weak point.
Extra critically, broader market forces rapidly overwhelmed the CAD-specific fundamentals. The mix of rising oil costs supporting the commodity-linked Loonie and chronic JPY weak point pushed by BOJ dovishness created an ideal storm for CAD/JPY upside that lasted by the week’s finish.
If merchants adopted the quick technique however did not exit rapidly after the preliminary transfer, they possible confronted mounting losses because the pair climbed again above the occasion worth and continued greater.
The important thing lesson right here is that whereas our basic evaluation was directionally right initially, the low-conviction setup and conflicting cross-currents made this a difficult commerce to execute profitably over something past the speedy post-event response.
