- The Canadian dollar has rallied a bit against the Japanese yen during the trading session on Tuesday, as we have broken to the upside, but really at this point in time, I think we are still in a very tight 200 point range.
- The main reason for that, of course, is the fact that Wednesday we have the bank of Canada releasing its latest interest rate statement and it is expected that they will cut by 50 basis points. This does set up a potential big move on any shock.
Interest Rate Decision Will Be Massive
For example, if the Bank of Canada cuts 25 basis points, that could send this pair rocketing to the upside.
Furthermore, there’s the press conference and statement a little later, both of which have the potential to send the market in one direction or the other. So, I have the 110 yen level marked on the chart and the 108 yen level marked on the chart as well. I’m just simply waiting for this market to break out of this area to determine which way to go.
One thing is for sure, if the Bank of Canada decides to cut interest rates by 50 basis points and then suggests that they are done cutting, if the market believes them, that will send the CAD/JPY exchange pair higher due to the carry trade.
Furthermore, you have to pay attention to oil because this is a highly sensitive market to the oil markets as the Japanese have to import 100% of their petroleum. And of course, Canada is known as an exporter of crude oil. With that being the situation, this sets up as a very interesting potential trade.
I will be watching very closely, as this could be a situation where we are watching a big move set up, and potentially open the possibility of a bigger move that has some sustained momentum.
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