We are seeing an opportunity to profit from an awesome trade that has a lot of probabilities to play out both fundamentally and technically.
Fundamentals are looking solid not only because this is a positive carry trade, but also because Central Banks have shown recently this week completely oposite views on how they expect their currencies to perform in the near future.
On the One hand the Bank of Canada released a statement where they did cut down their QE program and it was clearly stated that they are planning on raising interest in the near future :
"We expect inflation to ease back toward 2 percent in the second half of this year and fall further due to the excess capacity in the economy."
On the other hand we have a very dovish Bank of Japan that is willing to do whatever it takes to lower its currency:
For the time being, the Bank will closely monitor the impact of the novel coronavirus (COVID19) and will not hesitate to take additional easing measures if necessary, and also it expects
short- and long-term policy interest rates to remain at their present or lower levels.
Very good.
On the technical side we have an already bullish trend in place. We currently got a rejection from the Daily 50 EMA after an ABC correction.
On the intraday however, we have got an overextended run that occurred after the initial news releases. Since we may get a "buy the rumor, sell the fact" kind of effect on the CAD monetary policy, I am looking for the cad to create a proper pullback on the 4H chart that will give us an entry to get long and ride this move higher. Potential targets for me will be the next fibonacci extensions. Trade would be managed accordingly depending on how price reacts to those levels.
Fundamentals are looking solid not only because this is a positive carry trade, but also because Central Banks have shown recently this week completely oposite views on how they expect their currencies to perform in the near future.
On the One hand the Bank of Canada released a statement where they did cut down their QE program and it was clearly stated that they are planning on raising interest in the near future :
"We expect inflation to ease back toward 2 percent in the second half of this year and fall further due to the excess capacity in the economy."
On the other hand we have a very dovish Bank of Japan that is willing to do whatever it takes to lower its currency:
For the time being, the Bank will closely monitor the impact of the novel coronavirus (COVID19) and will not hesitate to take additional easing measures if necessary, and also it expects
short- and long-term policy interest rates to remain at their present or lower levels.
Very good.
On the technical side we have an already bullish trend in place. We currently got a rejection from the Daily 50 EMA after an ABC correction.
On the intraday however, we have got an overextended run that occurred after the initial news releases. Since we may get a "buy the rumor, sell the fact" kind of effect on the CAD monetary policy, I am looking for the cad to create a proper pullback on the 4H chart that will give us an entry to get long and ride this move higher. Potential targets for me will be the next fibonacci extensions. Trade would be managed accordingly depending on how price reacts to those levels.
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