Forex Trading Signals by Magister Pips, 2012/07/17
0900 Bank of Canada Interest Rate Decision (no change @ 1.00% expected)
Again no change expected on rates from the Bank of Canada.Despite no change last month
the USDCAD did quite a whipsaw of about 50 pips total. Starting out at 1.0400 approx
pre-release price, the pair did shoot up 25 pips then then quick whipped around and
traded down to about 1.0390 within the 1st minute of the release, and as low as 1.0375
over the next 5 minutes. The month before there was also no change but the pair dropped
95 pips over the next 2 hours. This is all because the Rate Decision comes along with
a statement from the Central Bank which can affect the bias of traders going forward
about the likelyhood of future rate changes. Sometimes the statements are quite clear
or go against the commonly held assumptions of traders. Price action will develop a
nice clear trend which can persist for a couple of hours. Last month however was the
other side of the coin, basically a statement which either said nothing in particular
and only created an opportunity for some market volatility to take out some stops or
was confusing enough to move the fast-money from leaning to one side to quickly shifting
to the other. Anyway trading Central Bank statements is not exactly straightforward and
can many times appear to go against what seems like common sense. If you read the statement
which will appear on the BOC website just after the Rate decision and notice a particular
theme appearing to be emphasised and price action which matches this emphasis then it could
be worth a shot, otherwise stick to the safe side and just setup to trade the unlikely event
that the BOC may change rates unexpectedly. Basically Canada's arms are tied. They got
natural resources and have run a fiscally responsible government, however the economy is
closely tied to the US economy and indeed the global economy where risk and negative sentiment
reign, and most Central Banks are not about to step out of line and start hiking rates unless
they are growing solidly as some BRIC economy. The RBA did mention holding rates earlier in
the week which gave the pair enough gas to hit 1.0300, but Australia is more tied to China,
not the USA like Canada. As we have seen on the AUDCAD pair this year, this is not always
in Australia's favor as China is being closely monitored for any signs of a slowdown, but
how long can it keep up such growth? Anyhow a bit off subject now.
-If they HIKE rates to 1.25% or higher, USD/CAD should GO DOWN 100+ pips.
-If they CUT rates to 0.75% or lower, USD/CAD should GO UP 100+ pips.
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