At 9 AM EST Tuesday, Canada will likely cut rates 50 basis points from 2.50% to 2.0% in an effort to stimulate the ecomony. This comes after an unexpected but seemingly necessary rate cut on October 8th. This has the possibility to extend the losses we have seen since the beginning of October. Normally a rate cut would induce a downtread in the CAD; but today might be a different story based on the technicals.
I'm looking at the one hour USD/CAD chart right now and I'm getting really excited about a short-term pullback trade for this pair. While the rate cut may increase gains for the USD, I feel that right now after this long run there is just no where to go. We saw a sharp increase in this pair on October 10th, only to pull back when oversold at 1.2115. We are once again approaching this level and could form a double top. I feel pretty strong about a 1-7 hour pull back if the USD/CAD crosses the upper barrier of the RSI(21) indicator. This created a nice +35 pip short play for me yesterday as I posted with the GBP/USD double bottom.
I bases these ideas completely on technical analysis today, and I'm only looking for a 25-100 pip pullback once oversold. If you wonder why I love these plays, you might want to read why I love overbought and oversold conditions.
I really don't like to trade around the news, so any move I make will be after 9:00 AM EST. I would likely wait an hour to let the dust settle. To get a better picture of how these rate cuts have an effect on the CAD, Daily FX has a detailed article about CAD rate cuts. Cheers and good luck today.
updated Oct 21, 2008
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