The Bank of Canada’s July monetary policy decision delivered exactly what markets expected – a steady hand at 2.75%. At the time, traders also balanced the BOC’s data-dependent stance against a backdrop of wavering trade optimism and pre-FOMC positioning.
Let’s examine which pairs from our watchlist made sense to move forward on, and how they performed in this environment of moderate conviction and mixed fundamental drivers:
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The Setup
- What We Were Watching: Bank of Canada’s Monetary Policy Statement for July 2025
- The Expectation: Interest rates to remain unchanged at 2.75%
- Data outcome: Rates held at 2.75% as expected, with BOC acknowledging trade uncertainty and mixed economic signals
- Market environment surrounding the event: Neutral to negative risk sentiment; traders tempering optimism over trade deals while pricing in potential U.S.-Russia disagreement and FOMC uncertainty
Event Outcome
The Bank of Canada delivered on expectations, keeping rates steady at 2.75% for the third consecutive meeting. However, the nuances in the statement and Governor Macklem’s press conference provided the real market drivers:
Key points from the BOC decision:
- Rate unchanged at 2.75%, marking third consecutive hold
- Clear consensus among Governing Council members to maintain current stance
- “Diversity of views” acknowledged regarding future policy direction
- Trade uncertainty remains “too unpredictable” for single economic forecast
- Data-dependent approach emphasized, with BOC ready to respond to new information
- Inflation concerns mixed: headline CPI at 1.9% but underlying inflation climbed to roughly 2.5%
- Dovish tilt maintained with explicit mention that rate cuts may be needed if economy weakens further
Governor Macklem stressed the need to proceed carefully given the “unusual amount of uncertainty,” noting the bank would be “less forward-looking than usual” while remaining ready to act decisively. His key message: “We will support economic growth while ensuring inflation remains well controlled.“
Fundamental Bias Triggered: Bullish CAD Setups
Markets approached the BOC decision amid a complex backdrop of trade developments and shifting risk dynamics. The US-EU trade framework announced over the weekend initially sparked relief with its 15% tariff structure, but optimism quickly soured as German and French officials criticized the deal as potentially damaging to Euro area growth prospects.
Trade negotiations continued to evolve rapidly, with reports suggesting a possible 90-day extension of the US-China tariff truce providing brief moments of hope. However, Trump’s announcements of new tariffs on India (25%) and Brazil (50% on most goods) served as stark reminders that protectionist pressures remained very much alive.
Geopolitical tensions added another layer of complexity after Trump dramatically shortened Russia’s peace deal deadline from 50 days to “10 or 12 days,” while floating the possibility of secondary oil sanctions. The massive 8.8-magnitude earthquake in Russia’s Far East initially triggered safe-haven flows, though these proved temporary as markets refocused on economic fundamentals.
U.S. economic data painted a robust picture with Q2 GDP surging to 3.0% (vs 2.5% expected) and ADP employment jumping to 104k, though analysts noted much of the GDP strength came from unwinding tariff-related import distortions. These releases reinforced the dollar’s dominance heading into the FOMC meeting.
The Fed’s influence cast a long shadow over all risk assets. Wednesday’s decision to hold rates steady, despite rare dissents from Governors Bowman and Waller, shifted the narrative decisively. Powell’s press conference cooled September rate cut speculation dramatically, with market pricing dropping from 68% to below 50%, providing sustained support for USD strength that would persist through week’s end.
EUR/CAD Net Bullish CAD Event outcome + Risk-Off Scenario = Arguably the best odds of a net positive outcome
EUR/CAD 1-hour Forex Chart by TradingView
The initial setup played out beautifully through Thursday. EUR/CAD broke below the key 1.5900 support level and extended to our S2 Pivot Point (1.5850) target zone as anticipated, and even hit the S3 Pivot support area. The combination of a steady BOC decision and Euro Area trade deal skepticism created the perfect fundamental backdrop for CAD strength.
However, Friday’s dramatic events completely altered the script. The catastrophic US jobs report (73,000 vs 100,000 expected, plus 258,000 downward revision) triggered massive dollar weakness and repriced Fed rate cut odds to 80%. Meanwhile, eurozone inflation printed at 2.0% versus 1.9% expected, suddenly making the policy divergence story favor Europe.
Most significantly, Trump’s tariff escalation hitting Canada (from 25% to 35%) and Switzerland (39%) late in the week reignited trade war jitters just as things seemed settled. While CAD initially showed resilience, finishing as one of the week’s top performers overall, the late-week tariff shock limited the EUR/CAD setup’s full potential and potentially resulted in a net negative outcome if active trade management was not employed (i.e., profits locked in/risk reduced ahead of Friday’s top tier events).
Not Eligible to move beyond Watchlist – Bearish CAD Setups and CAD/CHF long setup
CAD/CHF: Bullish CAD Event outcome + Risk-On Scenario
CAD/CHF 1-hour Forex Chart by TradingView
This setup was invalidated by the uncertain trade deals environment, but it worked well initially with CAD/CHF eventually breaking above the 0.5870 resistance area post target event as the BOC’s balanced tone supported the Loonie. However, Friday morning’s bombshell tariff announcements on Switzerland and Canada from the US created extraordinary volatility.
The Swiss franc initially plummeted on the tariff shock to help CAD/CHF bulls out, but then transformed into a bearish move after Trump escalated Canada’s tariff rate from 25% to 35% – a move that sent CAD lower quickly and sparked immediate concerns about additional BoC rate cuts ahead. This development also prompted broad risk aversion behavior, which likely triggered CHF’s defensive characteristics, ultimately sending CAD/CHF lower. Again, while initially supportive, late week catalysts likely turned this into a net loss without active risk/trade management.
NZD/CAD Long: Net Bearish CAD Event outcome + Risk-On Scenario
NZD/CAD 1-hour Forex Chart by TradingView
The target event did not favor a bearish CAD setup, as the central bank delivered a steady data-dependent approach.
The fundamental developments also blew out the technical setup as well. The Loonie emerged as one of the week’s top performers despite Friday’s tariff escalation (likely benefiting from oil rallies spurred by geopolitical tensions and trade optimism). Meanwhile, New Zealand suffered a 15% tariff imposition and domestic data disappointments (building consents down 6.4%, consumer confidence dropping 4.1 points), locking in the Kiwi as the week’s worst performer. Both combined, and the technical bulls didn’t really have a chance of drawing in enough support at that rising trendline to spark a bullish reversal.
CAD/JPY Short: Bearish CAD Event outcome + Risk-Off Scenario
CAD/JPY 1-hour Forex Chart by TradingView
This setup assumed a bearish CAD outcome, which didn’t materialize, thus invalidating this idea from moving beyond the watchlist. And thanks to an wild week of fundamental developments, the outcomes of technical setups pointed out in the original discussion would have been highly dependent on active trade and risk management given the spike higher in volatility and whipsaw action.
Overall, this would have been a tough one to have a high conviction directional bias on as the Japanese yen emerged as the second-best performer after the dollar, benefiting massively from Friday’s risk-off sentiment and the BOJ’s measured approach to policy changes. Meanwhile, CAD showed surprising resilience throughout the week despite late tariff headwinds. But the volatility was great and would have likely benefitted scalpers and short-term traders who were able to watch the news and adjust to the fast moving events.
The Verdict
The BOC’s data-dependent stance supported net long CAD opportunities, and the arguably environment due to trade uncertainty meant that EUR/CAD was the only pair to move beyond the Watchlist phase. EUR/CAD initially performed exactly as expected through Thursday in support of a net positive outcome. However, Friday’s extraordinary market events reversed those gains, making the outcome likely supportive to only those who actively managed the position with risk reduction and/or profit taking heading into Friday’s top tier events. Overall, we’d rate this discussion as “neutral” in supporting a potential net positive outcome.
What Friday’s Events Revealed:
- A single day’s developments (jobs disaster + tariff escalations) completely overwhelmed a week’s worth of currency-specific analysis
- Safe-haven flows and trade war fears proved more powerful than central bank communications
- Even successful technical setups became vulnerable to macro regime changes
- The current market environment requires defensive positioning even when analysis appears solid
Key Takeaways:
Most Event-Driven Setups Failed When Broader Forces Intervened
Despite solid BOC analysis, the market moved against our high conviction thesis due to Friday’s events. This demonstrates that in volatile macro environments, event trading should be approached with lower risk parameters and more actively watched.
Technical Analysis Works Until It Doesn’t
EUR/CAD’s textbook break-and-retest pattern delivered perfectly through Thursday, then reversed sharply on Friday. Technical levels mean little when fundamental regimes shift rapidly. Success requires knowing when to exit based on changing conditions, not just chart patterns.
Active Risk Management Was the Only Differentiator
The difference between profit and loss this week wasn’t analytical accuracy – it was whether traders took profits on Thursday or held through Friday’s volatility. In unstable environments, profit-taking discipline matters more than perfect entry timing.
Trade War Announcements Override Everything
Trump’s Friday tariff blitz (Switzerland 39%, Canada 35%) proved more market-moving than the BOC, FOMC, or any economic data. Current market conditions require positioning for policy surprises, not just economic fundamentals.
Safe-Haven Currencies Benefit from Chaos
JPY’s emergence as the week’s second-best performer and CHF’s late-week strength recovery demonstrate that in volatile environments, defensive currencies often outperform despite poor fundamentals in extreme geopolitical situations like the developments ahead of Trump’s Tariff Deadline.
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