SPECIAL REPORT: Trading The Central Bank Calendar

  • A look ahead at the next fortnight in BoC, ECB and BoE.
  • What to expect and how markets are positioned. 
  • Look to take advantage of asymmetric risk. 

BoC (Thursday Jan 23, 2am AEDT / 3pm GMT)

Expect the BoC's overnight target rate to remain unchanged at 1.75% in line with market pricing, which currently suggests a negligible 2.5% chance the BoC hike. Economic data has been choppy, but in contrast, the messaging of Governor Poloz has been stable. I think Poloz's reaffirmation that domestic housing and labour look robust, and external uncertainties in US-China trade tensions have somewhat waned, means we're likely to see BoC deliver a more neutral message. But carrying the potential of a hawkish twist. 

LT: short bias with target of 1.2
ST: short entry around resistance at 38.2% Fib 1.394-1.3100

USDCAD (weekly)
USDCAD (hourly)
Source: Eikon

ECB (Thursday Jan 23, 11.45am AEDT / 12.45pm GMT)

Little risk here of any rate change given Lagarde's recent appointment. Instead, markets will be looking to soundbites around the start of the ECB's Strategic Review and what's entailed.

As Lagarde rebuilds consensus among members and identifies the efficacy of negative rates, the dovish risks around ECB policy should start to become more muted. Especially when you mix in improved sentiment seen over the past few PMI prints. With 5bps of tightening also priced-in till the end of 2021, it's unlikely markets catch a significant hawkish surprise. 

Ultimately, it's probably best to stay neutral trading EURUSD through ECB given Friday's PMIs are more pressing, and low option implied vol. suggests trader convictions wait to digest the details of the ECB Strategic Review, and receive a more pronounced assessment of forward risks. 

BoE (Thursday Jan 30 11pm AEDT / 12pm GMT)

The combination of dovish communications from multiple MPC members, better than expected UK Employment and strengthened bets that the MPC undertake a 25bps rate cut according to futures, suggests the first BoE meeting of the year on Jan. 30 won't be lacking in action whatsoever. Of course, there's also Friday's pivotal UK PMI print - arguably the key in tilting the BoE - still to come, and so, it makes sense why markets are tentative to commit, with GBPUSD glued to the 55d-MA as of late. 

A 25bps cut most likely sees Sterling clear the 55d-MA. But ultimately fail to push further down towards the 200d-MA, as long-dated portfolio money takes advantage of a cheap GBPUSD considering post-election UK bullishness. 

GBPUSD (daily). 55d-MA (green). 200d-MA (dark blue). Gilts 10y yield (light blue). 
Source: Eikon