Bearish USD/CAD Break in Focus- Canada CPI to Trigger Fresh Lows?
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- Canada Consumer Price Index to Hold Steady at 2.0% for Second Straight Month.
- Core Rate of Inflation to Increase 1.5%- Fastest Pace of growth Since August 2012.
Trading the News: Canada Consumer Price Index
Despite expectations of seeing a 0.6% rebound in Canada Retail Sales, the Consumer Price Index (CPI) may play a greater role in driving the USD/CAD as the Bank of Canada (BoC) retains a rather dovish tone for monetary policy.
What’s Expected:
Why Is This Event Important:
A further pickup in core price growth may encourage the BoC to adopt a more hawkish tone for monetary policy, and we may see Governor Stephen Poloz continue to talk down bets for a rate cut should the data print curb the threat for disinflation.
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Expectations: Bullish Argument/Scenario
Release |
Expected |
Actual |
Existing Home Sales (MoM) (MAY) |
-- |
5.9% |
Net Change in Employment (MAY) |
25.0K |
25.8K |
Average Weekly Earnings (YoY) (MAR) |
-- |
3.1% |
The pickup in wage growth paired with the ongoing recovery in private sector activity may limit the downside risk for inflation, and a strong CPI print may generate fresh monthly lows in the USD/CAD as market participants scale back bets of seeing lower borrowing costs in Canada.
Risk: Bearish Argument/Scenario
Release |
Expected |
Actual |
Ivey Purchasing Manager Index s.a. (MAY) |
56.0 |
48.2 |
Gross Domestic Product (Annualized) (1Q) |
1.8% |
1.2% |
Retail Sales (MoM) (MAR) |
0.3% |
-0.1% |
However, firms may offer discounted prices amid the slowdown in economic activity along with the downturn in private sector spending, and a weaker-than-expected inflation print may spur a near-term correction in the USD/CAD as it raises the risk for a rate cut.
How To Trade This Event Risk(Video)
Bullish CAD Trade: Core Inflation Rises 1.5% or Greater
- Need red, five-minute candle following the CPI report to consider short USD/CAD entry
- If the market reaction favors a bullish Canadian dollar trade, establish short with two position
- Set stop at the near-by swing high/reasonable distance from cost; use 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: Canada Price Growth Disappoints
- Need green, five-minute candle following the release to look at a long USD/CAD trade
- Carry out the same setup as the bullish loonie trade, just in the opposite direction
Potential Price Targets For The Release
USD/CAD Daily
Chart - Created Using FXCM Marketscope 2.0
- Fails to Retain Series of Higher-Highs/Lows; Bearish RSI Break Favors Downside Target
- Interim Resistance: 1.1000 (1.618% expansion) to 1.1020 (23.6% retracement)
- Interim Support: 1.0710 (100.0% expansion) to 1.07309
Read More:
Bearish USD Setup Continues to Take Shape- AUD/JPY Range in Focus
USD/CAD Technical Analysis – Support Above 1.08 in Focus
Impact that the Canada CPI report has had on CAD during the last month
Period |
Data Released |
Survey |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
APR 2014 |
05/23/2014 12:30 GMT |
2.0% |
2.0% |
-15 |
-27 |
April 2014 Canada Consumer Price Index (CPI)
The headline reading for Canada inflation climbed an annualized 2.0% in April to mark the fastest pace of growth since April 2012, while the core Consumer Price Index (CPI) advanced 1.4% after expanding 1.3% the month prior. The uptick in price growth propped up the Canadian dollar, with the USD/CAD slipping back below the 1.0900 handle, and the dollar-loonie continued to trade lower throughout the day as the pair closed at 1.0864.
--- Written by David Song, Currency Analyst
To contact David, e-mail [email protected]. Follow me on Twitter at @DavidJSong.
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