USD/CAD – A Look At Options-derived Range Levels Ahead Of BoC

Published date: .

What’s inside:

  • USD/CAD one-day implied volatility rises to 15.25% ahead of BoC rate announcement
  • It’s elevated, but not super high in light of the central bank expected to stand pat on rates, policy statement likely to drive volatility
  • Projected one-day low/high clocks in at 12604-12806, technical levels are in proximity

Find out in our Q4 Forecast what is expected to drive USD/CAD through year-end.

In the following table, you’ll find implied volatility (IV) levels for major USD-pairs looking out over 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 periods. Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.

USD/CAD – A Look at Options-derived Range Levels Ahead of BoC

USD/CAD 1-day implied volatility rises to 15.25%, points to 1-stdev range of 12604-12806; it's wide, but not super wide.

The other day we noted that the options market was pricing in an outsized move on today’s BoC rate announcement at 14:00 GMT time. No surprise in the increased expectation given the magnitude of the event, it’s not just a vanilla data release. One-day implied volatility at 15.25% is elevated, but it’s not super elevated, which seems fair given it is widely anticipated that the central bank will keep rates at 1.00%. It’s the policy statement, as often times is the case, that could bring a surprising move if Governor Poloz and crew lean hard one-way or the other in regards to the future path for interest rates.

Looking at the proximity of the projected one-day and one-week levels you can see much of the next week’s volatility is priced into today’s event. The one-day projected range low/high is 12604-12806, a fairly wide range, but again nothing ultra-wide. Of interest from a technical perspective is the confluence of the August high at 12778 and upper parallel tied to the trend-line off the September low. These two intersect just below the projected high. A bump beyond resistance could spur momentum and see the anticipated range-high boundary exceeded. Looking lower the projected low falls in almost exact alignment with the earlier month swing-high right around 12600. A move to this level might find buyers as the general trend the past few weeks has been higher and dip-buyers may use weakness as an opportunity to enter.

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

USD/CAD: Daily

USD/CAD – A Look at Options-derived Range Levels Ahead of BoC

Join Paul live each week; for details please see the Webinar Calendar.

---Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email by signing up here.

You can follow Paul on Twitter at @PaulRobinonFX.