Potential volatility could be coming for the Loonie with the Bank of Canada meeting around the corner. Will we hear talks of a rate cut?
CAD/JPY Long Ahead of BOC Meeting
Next Wednesday, the Bank of Canada will meet once again to discuss and give their latest statement and report on monetary policy. This will likely spark a strong reaction in Loonie pairs as traders have been battling between the possibility of keeping policy stimulative for this temporary soft patch and broad risk-on sentiment that has been rising as global economic growth seems to be stabilizing. But as recent as today, we got the latest Canadian inflation data, showing a rebound in the rate of price growth in March (+1.9% y/y vs 1.5% in February). It wasn’t anything to get super bullish on for the Loonie, but it is arguable that the the BOC will tone down any calls for a rate cut at the next meeting.
The Bank of Japan will have its own monetary policy meeting the next day. This event is usually not a market mover for the yen as the BOJ has remained stimulative for as long as anyone can remember. And with recent rhetoric indicating that additional easing is possible, and leading indicators pointing to future weakness, I’m guessing the odds are more in favor of more dovish commentary than hawkish from the BOJ next week.
With that fundamental picture of “not so dovish BOC and likely dovish BOJ,” I think CAD/JPY has better odds of going up than down, so I’ll look to build a long position to play the potential pop in volatility next week.
Before that though, it looks like we may get one more pullback as the 84.00 handle is behaving as strong resistance, so I’ll look to buy on a pullback to the previous support area between 82.50 to 83.50. My stop will be around the weekly ATR from my first entry, and my initial target will be around the March high where I will re-assess and adjust. Here’s what I am doing:
Long with 0.50% risk at 83.50, max stop at 81.40, max target at 85.00
Long with 0.50% risk at 82.50, max stop at 81.40, max target at 85.00
I’m only risking 1.00% of my account on this trade and if both positions trigger then hit my target, I’ve got a potential return-on-risk of 2.5:1. What do you guys think? Let me know in the comments section below!
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