Canada Retail Sales to Spur Pullback While USDCAD Eyes Higher High

- Canada Retail Sales to Rebound 0.2% in November

- Household Spending as Increased Seven Times in 2013

Trading the News: Canada Retail Sales

A rebound in Canada Retail Sales may spark a near-term correction in the USDCAD as it raises the fundamental outlook for growth and inflation

What’s Expected:

Time of release: 01/23/2014 13:30 GMT, 8:30 EST

Primary Pair Impact: USDCAD

Expected: 0.2%

Previous: -0.1%

DailyFX Forecast: -0.1% to 0.2%

Why Is This Event Important:

In light of the recent comments from the BoC, it seems as though Governor Stephen Poloz may revert back to an easing cycle as the persistent slack in the real economy raises the threat for disinflation, and the central bank may turn increasingly dovish over the coming months should we see a further slowdown in the economic recovery..

Expectations: Bullish Argument/Scenario

Easing price pressures paired with the underlying recovery in the real economy may generate a rebound in retail sales, and a positive print should offer a more meaningful pullback in the USDCAD as it remains overbought.

Risk: Bearish Argument/Scenario

However, subdued wage growth paired with the ongoing weakness in the labor market may continue to drag on consumption, and a weaker-than-expected outcome may spur fresh lows in the Canadian dollar as it fuels expectations for a rate cut..

How To Trade This Event Risk(Video)

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Bullish CAD Trade: Household Spending Rises 0.2% or More

• Need red, five-minute candle following a positive print to consider a short USDCAD trade
• If reaction favors a long Canadian dollar trade, sell USDCAD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish CAD Trade: Private Consumption Disappoints

• Need green, five-minute candle to favor a long USDCAD trade
• Implement same setup as the bullish Canadian dollar trade, just in opposite direction

Potential Price Targets For The Release

USDCAD Daily

Chart - Created Using FXCM Marketscope 2.0

• Retails Long-Term Bull Trend; Looking for Higher High
• Favor ‘Buying Dips’ as Long as RSI Holds Above 70
• Interim Resistance: 1.1100 Pivot to 1.1140 (100.0% expansion)
• Interim Support: 1.0900 Pivot to 1.0930 (61.8% expansion)

Impact that the Canada Retail Sales report has had on CAD during the last month

October 2013 Canada Retail Sales

Retails Sales for the month of October came three tenths below expectations to actually decline MoM by 0.1% following September’s dismal reading that marked the biggest decline since April 2010. The initial move in USDCAD higher was partially inflated by CPI data that also came in below economists’ surveys at 13:30GMT. Notably, the missed MoM figure for Retail Sales was led by a 1.9% decline in motor vehicle & parts dealers in October. Following the Bank of Canada rate decision yesterday, USDCAD saw multi-year highs intraday and spent the NY session above 1.10. Certainly, a missed print here would contribute to already dismal data out of Canada and may continue to put pressure on CAD crosses as important levels continue to be breached following a breakout against the greenback earlier this month.

--- Written by David Song, Currency Analyst

To contact David, e-mail [email protected]. Follow me on Twitter at @DavidJSong.

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