Trading The CAD/CHF With A Dovish BoC Rate Statement

"We could have waited for a simple 50% retracement and traded the CAD/CHF for a much more significant move ."
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In this video we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the BoC Rate Decision this week…

The move we’re going to be looking at is this one here on CADCHF. So, let’s break this down and see how you could have predicted and caught this move, using our market commentary.

So, firstly we need to understand the context or the baseline surrounding this pair before the move took place…

In the Financial Source Terminal on the 4th of March, we can see that we released our Dominant Sentiment Theme report the morning of the rate decision saying that the market was in a cautious tone after the G7 finance minster and central bank meeting fell short of the market’s expectations to curb the economic fallout from the Coronavirus.

As a result of the more caution risk tone we also saw strength for the JPY and CHF in the session due to their safe-haven status. The underlying market tone was also more negative due to the ongoing Coronavirus concerns at the time. 

Once the baseline was in place the next step is to identify the type of breaking news that would generate the biggest market moving shift…

Also, in the terminal on the 4thof March we released our Daily Risk Event Outlook Report, and in this report we highlighted that the BoC was expected to cut by 25-basis points, and we highlighted that a bigger rate cut of more than 25-basis points would have created a dovish shift in the CAD.

We also highlighted that we had to pay attention to the forward guidance of the BoC, for example would they say the rate cut was a one-and-done that could be taken as a less dovish tone and if they signaled there is more possible cuts to come that would be seen as more dovish than expected.

So now all we needed next was the trigger, in other words, the sentiment shift that we identified ahead of time, to actually take place.

So, also in the terminal, later on the 4thof March we had the BoC meeting where we can see the bank cut the rates by 50-basis points which gave us the first dovish signal to sell the CAD, but we also saw the bank gave clear indication that they were willing to cut even more if the economy requires it.

Thus, based on the baseline info provided in our analysis and commentary ahead of time, we knew a CADCHF short was going to be a high conviction trading opportunity with the outcome of the meeting.

In the chart we see that we had an initial spike to the downside in the pair on the 1-minute timeframe and then a pullback as the market was digesting the bigger rate cut as well as the statement, and after that we had an initial drop of about 30-pips.

Now, in the 5-minute chart, even if you weren’t quick enough to jump in right after the 1-minute candle we did have the risk tone deteriorate even further into the next session so we could have waited for a simple 50% retracement and traded the CADCHF for a much more significant move lower into the next couple of sessions as the bias remained firmly to the downside.

So, if you’re interested in learning more about how our market commentary can help you interpret news and fundamental analysis into profitable trades like this, click the menu above and check out Financial Source.

Thank you and please post your questions or comments below this video because we read them all and actually base our future posts on what you ask for.

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