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What the Bank of Canada’s Rate Decision Means for the Market

The NASDAQ recently experienced its worst day in almost two months due to Canada’s Bank of Canada’s rate decision. After pausing for two months, the bank announced that they will raise rates, leading to a reaction in the bond and stock market. The market is pricing out rate cuts for 2023. However, the yearly high of the market is still holding, and there is no need to panic. The bond market has been fluctuating, and after the Bank of Canada’s decision, it is pricing in a pause for the June meeting and a rate hike in July. The market still believes that there will be a cut by the end of the year, implying that problems may arise that force the FED to cut rates. Market movements will depend on Powell’s response to CPI, which is crucial to keep track of.

Underlying Events

While there is not a lot of news, underlying events are happening in the market that could affect the future. Bond volatility is breaking down, which could lead to potential opportunities for traders. The Nigerian currency experienced a mini-devaluation, and the Turkish lira collapsed. The Chinese currency also hit a new low. While these events may not feel relevant to some investors, it’s important to keep track of them in case they impact other areas of the market.

The Three Plays in the Market

A recent speaker presented three different plays in the market that could be worth monitoring for traders.

Play One: Extreme Monitoring

The first involves monitoring the market and shorting an extreme if it goes beyond 70/30 until it comes back between all data sets and events. This strategy may not work for everyone, but for those who are looking for potential short-term gains, it could be worth considering.

Play Two: MOS Fertilizer

The second play involves watching MOS fertilizer, paying attention until the commodity report is released on Friday. Commodities can be volatile, but for those who are willing to take the risk, there could be potential gains to be had here.

Play Three: Regional Banks

Lastly, regional banks made significant moves that day, with XLF not at its April high, but the regionals returning to their March low. It was advised not to get too comfortable and stay focused on the primary mission while keeping an eye on the market’s movements.

Conclusion

While the Bank of Canada’s rate decision may have caused some turbulence in the markets, it’s important to remember that the yearly high is still holding, and there is no need to panic. However, it’s recommended that FED Futures be closely monitored before and after the FED, and that underlying events be tracked in case they impact other areas of the market. For those looking for potential opportunities, the three plays presented by the recent speaker are worth considering, but caution should always be exercised.

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