Trading A Hawkish Tone From The BoC

In this video we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Bank of Canada this week...
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In this video we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Bank of Canada this week…

The move we’re going to be looking at is this one here on USD/CAD Pair. So, let’s break this down and see how you could have predicted and caught this move, using our market commentary. Just before we begin, don’t forget to subscribe or follow on our Youtube Channel, so that you’ll get notified every time we release a new video.

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

Inside the Financial Source Terminal on the 4th of December, we released our Sentiment Drivers report for the CAD. In the sentiment drivers report we saw that the current baseline for the CAD was that the currency was being driven based on the market’s speculation about what the BoC would do next in terms of monetary policy as well as trade uncertainty.

Now this second part is very important, we highlighted that in their previous meeting the BoC expressed great concern over global trade uncertainty, also stating that “trade tensions were restraining business investment while helping to cut commodity prices”. So, based on this we knew that the CAD was being driven by future rate expectations from the BoC and that a main concern was global trade.

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…

So, in the same sentiment drivers report we saw that possible sentiment shifts in The CAD would occur from further global trade developments as the BoC’s monetary policy was very focused and tied to trade issues and the global economy. We also highlighted that we needed to pay attention to how much trade uncertainties are influencing the rate outlook.

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 on the 4th of October we had the BoC’s rate decision announcement and statement. In this feed item the BoC stated there was evidence that the global economy is stabilizing, and furthermore explained that growth appeared to be intact and were expected to edge higher. These comments were in stark contrast to the BoC’s previous meeting where they stressed about the dangers and risk to the global economy and the markets took these comments as more upbeat and hawkish than expected.

The USD/CAD pair dropped over 120 pips after the BoC’s announcement. By dropping down to a lower timeframe like the 1-minute timeframe we saw that there was ample amount of time, almost an hour, after the announcement came through on the squawk to evaluate and digest the information and to realize that this was a more hawkish and upbeat tone from the BoC. Even if you jumped in after the first 1-minute candle after the first big move lower the pair continued to fall another 80 pips throughout that session and the next day.

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