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USD/CAD Options Pricing Calling for Big Movement on BoC

USD/CAD Options Pricing Calling for Big Movement on BoC

2017-09-06 11:05:00
Paul Robinson, Strategist
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What’s inside:

  • USDCAD one-day implied volatility balloons to nearly 23% ahead of today’s BoC meeting
  • The projected one-standard deviation daily range is 12235 to 12531
  • The pair is trading at a major long-term trend-line, today could make or break that line

The importance of trading psychology can’t be understated. Check out this beginner’s guide – Building Confidence in Trading.

In following table, you’ll find levels of implied volatility (IV) for major USD-pairs for the next one-day and one-week time-frames. Using these levels, we’ve derived the range low/high prices from the current spot price within one-standard deviation for specified time-frames. Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.

USD/CAD Options Pricing Calling for Big Movement on BoC

One-day implied volatility swells to nearly 23%, points to a potential 1-stdev range of 12235-12531

At 14:00 GMT time, the Bank of Canada will release its decision on interest rates, with expectations that it will keep its benchmark rate at 0.75%. The bigger risk, barring a surprise raise, is likely to come with the central bank’s policy statement. (For more a deeper look, check out this piece.)

The options market is pricing in a sizable move today, with one-day implied volatility at nearly 23%. This implies a daily range within one standard deviation of the current spot price of 12235-12531.

We enter today’s event-risk with USDCAD at a significant cross-road. The recent break below the July low put the pair at a trend-line rising up from September 2012. This sets us up for a ‘make or break’ moment here as either support will hold and we will see some type of recovery at the least unfold, or major support fails and ushers in continuation to the down-side.

While the projected low/high levels don’t align with any major technical levels to speak of, the ramped-up implied volatility at a major line of support does suggest a high likelihood that we have a clear resolution once the dust settles today.

For other currency volatility-related articles please visit the Binaries page.

USDCAD: Daily

USD/CAD Options Pricing Calling for Big Movement on BoC

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---Written by Paul Robinson, Market Analyst

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