At the moment both intraday buying sentiments signal little upside potential as we observed the pair has currently been unable to breach and sustain channel resistance at 0.9880 levels where prices were rejected in the recent past at the same juncture. But in the long-term downtrend this upside potential is restrained at 0.9955 levels.
In March month, it has completely shown whipsaws on DMAs and on resistance at 0.9955 levels (see daily chart).
Although it has taken support at 0.9792 (channel resistance), bullish momentum is not convincing on technical indicators.
The Canadian economic position seems encouraging, with GDP and retail sales both producing upbeat consensus expectations in March.
Given the prevailing economic backdrop, we look forward to the BoC to stand pat at its current policy stance at April’s meeting as well.
BoC's overnight rates likely to remain at 0.50% with Governor Poloz’s likely to maintain an optimistic tone.
In the short term, given our expectation of unchanged policy stance, AUDCAD spot FX is likely remain in the range of 0.9955 on north or 0.9812 on south.
As a result, IVs of 1W ATM contracts are stagnantly creeping up from current 8.93% to 10.12% of 1w expiries.
But, have a glance on Vega for OTM strikes, growing phenomenally. When we observe these sensitivities of option’s value to a change in volatility, what strikes our mind is that – are these numbers justifiable..?
So what is causing this consistent Vega – Usually Vega is at its highest for ATM options and declines exponentially as the option shifts into ITM or OTM.
This is because a small change in IV will make no difference on the likelihood of an option far out-of-the-money expiring ITM or on the likelihood of an option far into-the-money not expiring ITM.
ATM options are far more sensitive since higher IVs greatly increases their chances of expiring ITM.
The material has been provided by InstaForex Company – www.instaforex.com