What Happened Yesterday
Carnage!!! Well if you were long USDCAD and had stops below the market it was. But if you we’re short it was ‘manna from heaven’ … as the Funds dropped 280 points following the Bank of Canada surprise rate hike yesterday. The first 100 points didn’t touch the sides and once it broke through the last major support level at 1.2330 it was ‘gonnneeeeee’.
Why the dramatic move?
First of all it was seen as an outside chance that the BOC would hike, around a 40% chance in fact. So the majority of the market was either long or neutral so they had to sell to square up or get in on the action.
Secondly we had a massive technical level at 1.2330 which when it broke triggered a huge amount of stop loss orders.
Thirdly, Oil rallied over a dollar which also triggered more buying of CAD (selling of USDCAD).
So we had the ultimate ‘snowball’ scenario which when combined leaves very little liquidity in the market … so it drops like a lead ballon! I’d say the only reason it stopped moving lower was the Bank Of Canada buying through the Canadian banks…. it had to be, otherwise we’d be sub 1.2000.
What I like about this is the Bank of Canada moved aggressively and dominated the ‘situation’. They weren’t railroaded into it by the media or banks. This is old school and should be a lesson to all other central banks on how to control Monetary policy. The BOC would have earnt a huge amount of respect from the market and that will allow them to dictate ‘economic policy’ from here with authority!
Unfortunately the ECB involves 19 countries and is more of a political event so the chances of this happening today are very slim. But it is a possibility everywhere else, so watch this space as I think this sets a tone that other central bankers will follow.
Today’s Fundamental Drivers
We’re getting into the business end of the week with loads of high impacting data releases. The ECB meeting will be the main event and in particular the ECB Press Conference which is 45 minutes after their interest rate decision.
Technical Set Up – What’s Happening with the Majors
For most of the majors it was just another range bound day.
Still whipping about with a slight upward bias. It wants to go higher but just doesn’t have the momentum at this stage.
Drifted straight back into the range after taking out the shorts. It’s trading like bit of a mongrel at this point.
Sideways trading awaiting a spark from North Korea.
Contracting ranges as we await the ECB. We shouild see a little spike up and then down before the ECB release.
It’s a long way from the graveyard where it was a week ago. It’s got to top out up here as most short positions would have been taken out.
Sideways as Kim Jong-Un sits by his new range of missiles.
It’s already been said. The trend is down, the bias is down…. look for levels to get short!
Today’s Focus – Major Currencies in Play
You need to follow the economic data releases & best technical set ups to work out where the majority of action and interest will be.
Technical Set Up: Support 1.1893 & Resistance 1.1943
Fundamental Driver: ECB Rate Decision & Press Conference (45 mins later)
Potential Strategy: Changes to Tapering – buy EUR, No cange Sell.
Next Best Trade Update
We had an awesome set up for the BOC release but unfortunately the lack of liquidity meant we didn’t get set. (good to hear Jimmy took 195 pips out of it – well done!)
We’ve still go a number of orders pending in the market and with the ECB meeting coming up so I’d expect a few changes to the list.
We have also added a new ‘Watching’ status to recognise currency pairs we think are building to potentially good opportunities.
Check our Next Best Trades list for full order details.
The BOC move has come and gone. Learn what you can out of it and get ready for the next opportunity. The ECB is a beast and the EUR has been so dormant of late it’s overdue a thrashing.
Traders globally are becoming increasingly frustrated with a lack of central bank activity so they’ll be ready to jump on the ‘smallest breathe of life’ from Mario Draghi.
Keep your positions small and take the cash when you see it. These markets aren’t taking any prisoners so pay attention and don’t get caught up trading mid-range!
Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!