or put in a more *fancy* way…Taking Advantage of Directional Bias with Data on the Horizon
In my opinion, playing data is all about expectations. What has been discounted or “baked into the cake”? It’s not an easy thing to determine and it requires price movement to be measured. Ignoring the psychological effect and volatility that accompanies economic data means that an environment a heightened risk is also going to be ignored. It’s less about trading the data and more about respecting what it can do to volatility! I recommend respecting the time. Case in point: I do not trade data in that I am looking at the expected or consensus number versus the actual. I am instead respecting the TIME of the release and setting up trades that could take advantage of the price movement. My current strategy in the USD/CAD is a perfect example.
Fundamentally there two broad points of consideration. The first requires only a glance at the economic calendar to see that the Bank of Canada (BOC) Rate Statement and Overnight Rate release is at 9:00am EST. The Overnight Rate is expected to remain at 1.00% so that places heavy emphasis on the Statement. The second point is more nuanced and this is where the discounting and expectations come in. This is far more difficult to ascertain because there is no “measurement” other than to observe price leading into the event. Will it be hawkish or dovish? How much of an impact does the recent rally in crude oil have on the loonie? Does the BOC see a quicker recovery with the global demand for crude and commodities in general? Is the current geopolitical landscape only a near-term boost to commodities? This is an important consideration since crude oil and metals account for nearly half of Canada’s exports!
Based upon price action, even if rates are left unchanged and there is no suggestion of any hikes coming soon, the Directional Bias of the USD/CAD is down and I believe this must be considered when taking positions after the event. The downtrend on the daily chart would remove the 60 and 240-minute from any buy entries. In other words, getting long in this environment would be counter-trend and I will consider that only on five, 15, and 30-minute time frames. The 60 and 240-minute though are exactly where my attention is focused this morning. Both are in downtrends and therefore the BOC bounce that is currently pushing prices higher could set up a swing short at the 0.9747/0.9750 major psychological level or the 34 period EMA low on the 240-minute chart.
Realize that the data offers the volatility – in this case bullish momentum within an overall downtrend – that I seek for the swing shorts entries. The strategy is pure trend following. My requirement before the trend follow is a correction higher. The correction higher is not a reversal of the overall (daily) trend and a move to 0.9750 is basically a 23.6% Retracement of the decline from February 23 high to the today’s 0.9684 low.
– Raghee aka Queen Cleopiptra