With equity markets tumbling and no central bank intervention, there was a bit of chaos in this week’s financial markets. The U.S. Dollar, as the proxy for safe-haven conditions, traded sideways against a mixed pool of currencies.
Bank of Canada (BOC) rose the interest rate on the Canadian Dollar the other day to 1.75% on 2.2% total CPI inflation. It was hardly news, as the entire financial community expected the rate hike due to the tightening cycle Bank of Canada is in.
USD/CAD, the most critical CAD pair, traded with a bid tone the entire week before the release, despite the imminent rate hike.
The statement was even more hawkish. It lays the grounds for rates to go up over the neutral level. This is what set a buying spree on the Canadian Dollar, as expectations for future rate hikes punished bears.
However, all dips on the USD/CAD below the 1.30 level were met only with buying. The pair closed the day merely a few dozens of pips below the highs, once again confirming that the rate hike was in the cards.
The U.S. equity markets play with bearish conditions lately. As a consequence, the USD/JPY pair traded sideways, unable to stay above 112.50 for long.
For a bullish break, the all-important 114 area must be taken, but this can come only as a result of either Bank of Japan announcing something drastically bearish the Yen or U.S. equities bounce strongly from this almost ten percent dip.
At this point, the S&P 500 yearly performance is close to zero. If October remains in red as it is now, or even more, the chances are that the sentiment will become more acute in the two months until the end of the year.
ECB today may help. But it is poised to end to stay on course signaling the removal of quantitative easing this coming December.
Voices in the market argue against the removal of net asset purchases, but the truth is that they can’t continue for at least two reasons. One is that the ECB needs first to change the issuer limits or the capital keys (both problematic and counterproductive). Another one is that no one knows if more QE would help.
In the end, we’re left with a mixed picture to interpret in the last quarter of the year. With equities flat and the USD not going anywhere, the focus shifts, once again, to the stock market and central banks’ actions.
For a rise in volatility, market participants need a narrative. Can the Bitcoin breaking the $6000 support deliver it?