Please note, that this article comes from my archive. Check the actual date in the header.
One of the most important events for the rest of this week is going to be Bank of Canada meeting on Wednesday at 10:00am EST (16:00 SA Time). We have both the rate decision and press-conference. ‘Loonie’ traders will have a close watch of the event in order to understand the future of the regulator policy and direction of USDCAD trading for the next months. We’ve seen two surprising moves from BoC this year. The central bank hiked rates 25 basis points without any preparation of the market participants which saw traders piling into Loonie speculative positions and 250 pip spontaneous move. Dandy Catch suggested the possibility of such a move and to get short USD/CAD which paid off handsomely.
On a long term basis, Dandy Catch Analyst team has been in and out of short USDCAD positions since March 2017. The pair slide more than 1700 pips in period of May - September. The Canadian Dollar showed strength without any support from crude oil prices, which are traditionally crucial for the export-oriented Canadian economy. The main driver of such appreciation of the Loonie has been surprising strength of the economic reports together with a broad weakness of the greenback. BoC has been one of the first central banks to start the tightening cycle, leaving behind the period of unprecedentedly low interest rates. In this way they ‘lead the pack’ of central banks heading into 2018 and should continue to be watched closely.
There is one more reason why BoC officials move so fast relative to their peers. It’s not the first year they have a possible bubble in the housing sector. There is a certain cautiousness about too much pressure for the banking system due to a huge volume of mortgages. BoC has to be ready to react for possible shocks to the economy and there is no other instrument to do so other than interest rates. They hike with readiness in order to have the capability to cut in the worse-case scenario. And there is a big question about the current rate 1.00% rate: is it high enough for future cuts to be effective?
Taking such a view into account, we would not be surprised for another rate hike today, although the likelihood currently stands around 20%. Expecting the unexpected is a part of our job. Market participants do not price in a rate hike completely and if it happened, the USDCAD could move southwards very sharply: 200-300 hundred pips in several hours right after the decision. So there is an aggressive trading strategy for those traders who can afford a loss of 50-100 pips targeting 200-400 pips of a possible profit: short USDCAD 5 minutes before the rate decision, put a stop-loss order in a range of 50-100 pips above the price and be ready to close the position manually in case if there is no rate hike. Maybe even reverse depending on market reaction and rates momentum. A slightly more conservative approach would be to wait 5 minutes after the announcement after knowing the rate decision firmly and then short USD/CAD (only in the event of a rate hike). In the event of no rate hike, a bullish continuation in USD/CAD looks more probably and likely good for no less than 50-75 pips to the upside. A nice catch for a trade likely to be held under 1 hour.
Similar to the ECB rate decision tomorrow (which we are covering live for ‘Premium’ DandyCatch members), we can see a whipsaw so we do need to keep our wits about us and not be drawn into a position in reaction to sheer volatility alone. This is a key reason why being tuned into the DandyCatch ‘Live Trading Event’s is so valuable. An analyst is right there with you to guide you and help increase your knowledge quickly on how to trade such events.
Technically USDCAD is bullish on most timeframes. The only bearish exception is the monthly chart, which has very slow reaction technical indicators. The weekly chart turned bullish after breaking below long-term SMA200 (1.2506 currently) first time since May 2013. MACD histogram turned positive, the lines crossed to a bullish mode. Fast oscillator RSI14 is back above from oversold territory, but still below 50% level indicating possible bearish continuation in case if the rates failed to close the week on a strong momentum above 1.27.
The daily timeframe has a possible bullish reversal ‘head-and-shoulders’ pattern on daily chart with 1.3024 as first potential target. 
Another view of daily technical chart is below. MACD is bullish with the lines enlarging the distance between each other, RSI is bullish heading to overbought territory first time since May 2017, ADX is positive with much of room to go up. First resistance would be Simple Moving Average with 200-days period (1.3014 currently). Be aware that Stochastic RSI is already extremely overbought.
There is a more mixed picture on H4 and H1 timeframes, indicating a wait-and-see sentiment of major market players. The rates are stuck in a tight range slightly below local resistance of 1.2700 level without much of the volatility on the table. It looks like the usual calm before the storm.
Assuming all said, there are two possible scenarios and trading strategies: aggressive shorts right before the BoC decision (high risk) and conservative mode to wait-and-see, joining the party after getting a complete confidence of the market direction. This is the more advisable approach. Long USD/CAD positions are preferable in case of an on-hold BoC decision. All traders should remember about risk management rules before pulling the trigger.
Let the profit be with us!
Please note, that this article comes from my archive. Check the actual date in the header.
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