Later today the Bank of Canada will announce its latest interest rate decision. The probability of a rate hike is greater than 90% (according to overnight swaps) so we can almost guarantee such a move, the economic data out of Canada has been quite poor in recent months and this must have had an effect on the banks thinking. The last statement we had was very bullish
talking up the possibility of more rate hikes which was in stark contrast to the news from the Royal Bank of New Zeland which suggested a rate cut was as likely as a rate hike. This puts the two currencies at different ends of the spectrum and has brought the price to an interesting technical juncture, NZDCAD
has been in an upward move guided by the orange trendline for 6 years currently the trendline is under threat again. I always assume the trend is going to continue so have the count pointing higher. If the Bank of Canada fail to cut or their language turns more bearish
I think the NZDCAD
can rise quickly reversing the impulsive looking decline from the 19th of June, stochastics and RSI
would appear to support this view. Should the decision go the other way and they go through with the cut and have language suggesting more cuts are in the pipeline then the orange trendline will most likely break suggesting the cycle higher is complete and we can accept materially lower prices. The lower price view also has technical merit
, since the high in November 2016 we have had two lower highs and a lower low which implies that a bearish
sequence is in place.
The great news on this trade is that we will get clarity at a set point, the bank will either raise rates or they will not, their language will suggest more rate hikes or it will not. Good technicals and a clear decision on fundamentals what more could a trader ask for?
I will be risking 2% on this trade and will be looking for a risk reward of 5:1 considering the cleat nature of what lies ahead.