By Darrell Martin
Various Canadian economic news reports will be released Friday, May 19, at 8:30 AM ET. They include the Consumer Price Index (CPI), Core CPI, Retail Sales, and Core Retail Sales. Consumer prices makes up the bulk of inflation, which in turn influences interest rate decisions that can affect currency valuation. Retail sales tell about economic activity. The core reports exclude volatile items such as auto sales.
Since the market will typically react and move, followed by a retrace and pullback, this scheduled news is ideal for trading. To profit on this kind of move, use an Iron Condor strategy, trading Nadex USD/CAD spreads. The Iron Condor is a strategy best used during ranging markets or when it is anticipated the market will return to where it started. This news event has this type of move happening on average over a 12-month period.
Buy one Nadex USD/CAD spread below and sell one spread above where the underlying market is. The ceiling of the bought spread should meet the floor of the sold spread and be where the market is trading at the time. The suggested profit potential for this trade is $30 or around $15 for each spread. Entry can be as early as 8:00 AM ET for 10:00 AM ET expiration.
For the sold spread to profit, the market needs to stay, move down or up and then pull back to its floor. For the bought spread to profit, the market can also stay right at the ceiling of the bought spread and the floor of the sold spread. Conversely, the market needs to move up or down and then pull back up to the ceiling of the bought spread. When the market settles in between the two spreads is max profit.
Before any losses can happen, the market can move as far as 30 pips up or 30 pips down. A loss is only incurred at settlement or when exiting the trade and the market is past those two points. The trade profits when the market settles anywhere in between that 60-pip area. It is $1 less in profit for every pip away the market is from the center of the two spreads at settlement.
Stops can be placed in the event the market takes off and doesn’t pull back. The 1:1 risk reward ratio points are 60 pips above and below from where the market was at entry. More spreads can be used as long as there are the same number on each side of the trade.
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