In a move that was expected by many and doubted by others, Bank of Canada spoke about its interest rate policy. BoC became the first central bank among G7 countries to indicate that it will start raising rates soon. No hike today, but it could come as early as June 1st. No sign how big the increase could be, but 0.25% would be decent target, with maybe 0.50% at most. One must remember that current rates are historically low, so perhaps boost by 0.50% wouldn’t be out of the question.
News proved positive for Canadian Dollar. Loonie experienced strong jump against all currencies. Strong reaction to this news was expected.I wrote about in Loonie- Yen post, without trying to predict the outcome. But that was important for the developing down trend, such as it was. Taking a short position here before the announcement was dangerous. For me 4H chart was main time frame to watch, the intermediate trend. Didn’t want to take trade immediately under Friday’s low, because of lousy stops. One could have used 1H chart, but that should have had smaller objective. Guess it could have worked, if target was smaller than 40 pips, but I didn’t play with it.
The red eclipse shows approximate area where I wanted to see a bearish reversal pattern. I didn’t concern myself with exact level, but rather strength of a signal. Obviously, none was created, so no trade. Besides, general area on interest was reached not too long before the announcement, so there would have been no trade regardless. Interestingly enough, price still didn’t climb above the previous high, so the down trend has not been broken, for this time frame, that is. For this chart, however, development of any tradable signal (either way), as I see it, will take some time. Time to move on.
Japanese Yen is going through a weakness, not only against CAD but all over. It dipped under important supports last week, but picture is very unclear. If last week’s highs are touched, up trend is likely. Most larger tiem frames are showing wide and widening patterns, so for me staying with smaller magnitude charts makes more sense. For now. As things look right now, JPY will need some generally depressing news, in order to get stronger again. Don’t know what it might be – more GS debacle, whatever. But if it happens, plays like the one above should be order of the day. Hourly charts and breakouts under recent lows, with fairly small targets. Here it could be as much as 100 pips, but 80 is more realistic.
Other than that, I think I’ll try to chip away few pips today using very short time frames, like 5M in EUR-JPY, looking for small target set ups either way. I’m still waiting for the time frames I customary use to be a little more clear. No sense pushing trades when my opinions are comparable to guesswork.
Mike K.
