By Darrell Martin
Wednesday, September 6, at 10:00 AM ET, the Bank of Canada (BOC) will release its Policy Interest Rate Decision. BOC governing council members come to an agreement on where to set the rate. At the meeting held in July, the rate was increased from 0.500 percent to 0.750 percent. It is expected the rate will remain unchanged.
Traders watch interest rates closely since short-term interest rates are the primary factor in currency valuation. Being released at the same time is the BOC Rate Statement. This is the primary tool used to communicate with investors about monetary policy. The statement contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Whereas the Interest Rate Decision receives a High rate of importance amongst traders, the Rate Statement garners a Medium ranking.
This is news that can be traded. Utilizing Nadex USD/CAD spreads and a straddle strategy, you can enter as early as 9:00 AM ET with an 11:00 AM ET expiration. Your maximum risk should be $40.
A straddle is the opposite of an iron condor. It is a good strategy to have in your tool kit to use when a big move could happen, but you don’t know which direction the market will go. A straddle straddles the market. Just like an iron condor, two spreads are used, but in this strategy, the upper spread is bought while the lower one is sold. You want the ceiling of the sold (lower) and the floor of the bought (upper) to meet and be where the market is trading at the time of entry.
With a straddle strategy, when one of the spreads profits, the other will lose. Suppose your bought spread profits, then your sold spread will lose. The market will need to move far enough in one direction to cover the cost of both spreads plus bring in profit. With a maximum risk of $40, the market will need to move in one direction at least 80 pips to cover the costs of both sides of your straddle and bring you $40 profit. If the market moved 40 pips in one direction, which would be breakeven, of course depending on the exact entries.
For more scheduled news events, see the News Trading Plan. Learn strategies to trade them here at Apex investing Institute.
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