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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
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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)

boc rate expectations, cad rate expectations, bank of canada rate cut odds, boc rate cut odds, boc rate hike odds

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.

Pairs to Watch: CADJPY, EURCAD, USDCAD

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.

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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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