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FX Week Ahead - Top 5 Events: July Canada Inflation Report & USD/CAD Rate Forecast

FX Week Ahead - Top 5 Events: July Canada Inflation Report & USD/CAD Rate Forecast

2019-08-16 20:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist

Canada Inflation Report Overview:

  • The July Canada inflation report (consumer price index) is due out on Wednesday, August 21 at 12:30 GMT, and the data are expected to show a moderation in price pressures.
  • The path of least resistance for USD/CAD remains higher if crude oil prices are going to struggle further.
  • Retail traders have remained net-short since July 23 when USDCAD traded near 1.3125; price has moved 1.3% higher since then.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

08/21 WEDNESDAY | 12:30 GMT | CAD Consumer Price Index (JUL)

A Bloomberg News survey shows consensus forecasts pointing to a moderation in price pressures. Headline July Canada inflation due in at 1.7% from 2.0% (y/y), while the monthly reading is due in at 0.2% from -0.2% (m/m). It still holds that movement in energy markets will guide the Canadian Dollar and inflation all the same.

Bank of Canada Interest Rate Expectations (August 16, 2019) (Table 1)

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But with global markets enflamed by the US-China trade war, even if Canadian CPI figures are oscillating around the Bank of Canada’s medium-term target, traders have started to pull forward expectations of easing. The September BOC meeting has a 28% chance of a 25-bps rate cut, according to overnight index swaps. But there is a 66% chance of a rate cut at the October BOC meeting, and a 73% chance of a 25-bps rate cut by the end of 2019.


USDCAD Technical Analysis: Daily Price Chart (August 2018 to August 2019) (Chart 1)

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The path of least resistance for USD/CAD remains higher if crude oil prices are going to struggle further. Price has climbed back towards last week’s resistance near the 23.6% retracement from the September to December 2018 high/low range as well as the 38.2% retracement of the 2018 high/low range around 1.3225/30. With USD/CAD continuing to trade above the daily 8-, 13-, and 21-EMA envelope, daily MACD having risen above its signal line in bullish territory, and Slow Stochastics issuing a buy signal above the neutral line, it appears that the next leg higher for USDCAD is around the corner.

IG Client Sentiment Index: USDCAD Price Forecast (August 16, 2019) (Chart 2)

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USDCAD: Retail trader data shows 33.3% of traders are net-long with the ratio of traders short to long at 2.0 to 1. In fact, traders have remained net-short since July 23 when USDCAD traded near 1.3125; price has moved 1.3% higher since then. The number of traders net-long is 14.6% higher than yesterday and 6.5% lower from last week, while the number of traders net-short is 0.6% lower than yesterday and 17.1% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USDCAD trading bias.


Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

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