Forex Signal (Tue October 19 2010, 9:00am NY Time EDT) - CA BOC Interest Rate

Henry Liu

Former FPA Special Consultant
Bank of Canada (BOC) will once again meet for their Overnight Rate (Interest Rate) and the decision will be announced today at 9:00am sharp. Along with the rate decision, BOC Carney will also announce a Rate Statement to further explain today’s decision. Here’s what analysts are expecting:

9:00am (NY Time) CA BOC Rate Decision Forecast 1.00% Previous 1.00%

The Trade Plan

BOC (Bank of Canada) will be keeping its Overnight Rate unchanged as the majority of analysts agree (18 out 18 as surveyed by Bloomberg). BOC is likely to still remain optimistically cautious in its tone but the overall market is expecting for a pause.

I'll be trading this release using Spike Trading method as in the event of a surprise hike it is almost guaranteed that we'll see strong market movement immediately after the release.

For more information on my Spike trading method, please read:
Henry's News Trading Method

The Market
BOC Carney is likely to keep rates unchanged as the overnight swap is pricing in about 9% of probability of an interest rate hike during this meeting. As a matter of fact, chances for rate hike (according to Bloomberg) is 22% for the December 2010 meeting, 45% for the January 2011 meeting, 65% for the March 2011 meeting, and 100% for the July 2011 meeting.

Fundamentally speaking, BOC is likely to take a cautious approach to this sensitive issue, especially when U.S. is looking to start a second round of quantitative easing. Any imbalance in the monetary policy could upset the delicate dynamic between these two closely correlated economies.

Additional Thoughts
It is extremely likely for BOC to keep rates unchanged. Market may react to the accompanied statement, but I believe this would probably be a no trade.

Pre-News Considerations
Buy USDCAD on dips before the release and close trade 30 minutes before 9:00am.

Historical Chart & data for BOC Rate Decision


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