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 from a speech by Governor Poloz.
Now, the move we’re going to be looking at is one that occurred on the EURCAD currency pair. Specifically discussing the rally on the Canadian dollar. That was the key driver of the move we’ll be looking at.
So, let’s break this down and see how you could have predicted and caught this move using our market commentary. Firstly, we need to understand the context or the baseline surrounding this currency before the move took place.
Now as I said, the focus was on the Canadian dollar and every day we post something called the current sentiment driver’s report for each currency, and we did this for the Canadian dollar on the 21st of November first thing in the morning just after the London open.
This report basically gives us the baseline for the currency. And also the specific things, the specific type of breaking news that will move that currency at the time based on its context or its baseline.
So, what was the baseline for the CAD? Well essentially, the market was concerned that the global risks were going to cause the Band of Canada to become a little bit more dovish, specifically the US-China trade negotiations. The probability of a rate cut in January was increasing.
It had already got to 50% and it was rising a little bit over the last few weeks. In our report we explained that future sentiment shifts would come from comments by BoC members to determine exactly how much trade uncertainties were influencing the rate outlook.
The markets wanted to see what these bank members are saying in terms of how concerned they were, and bearing in mind, the market had already decided it’s pretty much something to be quite concerned about. So, they just needed to see what the bank thinks and that was going to influence how they were going to move next.
That was the baseline and that was the sentiment shift we were looking for. Some comments like that from BoC members that would give the market a clue and forward guidance. Now, all we needed was that trigger, that actual sentiment shift to occur.
We had the prime opportunity for this on the 21st of November. Remember, this was on the 21st at 09:42 in the morning, UK time. Then at 13:40 in the afternoon that same day we had Governor Poloz from the Bank of Canada speaking, which is a prime opportunity to listen to his comments. We knew they were going to be market moving at that time because that’s what the market was focused on.
In the Financial Source terminal 14:15, UK time, on the 21st of November, Poloz made the comment that he “believes we have monetary policy conditions about right given the situation.” So, he was a lot more positive than the market was expecting him to be.
His comments pushed back against the baseline expectations. You can see the analysis just talks about pushing back on recent comments from Wilkins who was a little bit more dovish. So, this was a positive comment in relation to the overall context and in relation to the baseline. This is a shift that we were looking for on that particular pair.
From the example in the video above, we can see on the EURCAD chart that we had a good 30 minutes to an hour to digest and figure out what Poloz had said. You had enough time to get the analysis and understand that it was a lot more positive than the market was expecting.
The move in total was about 70 pips from top to bottom, so there was plenty of pips to be made. You can see there was plenty of time to get into that trade as well. The key was understanding the baseline, knowing what to look for, and then recognizing that trigger as it happened and understanding how to trade it.
Now, 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, then click the “product” tab above and check out Financial Source.
Please post your questions or comments below because we do read them all, and we actually base our future videos and articles on the things you ask for.
I just read through the week ahead report, and I can see why he got confused with the hawkish shift, I didn’t put enough emphasis on the lower bound and the labour side, will choose the words more carefully next time not to confuse anyone.