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USD/CAD- Trading the Canada Retail Sales Report

USD/CAD- Trading the Canada Retail Sales Report

David Song, Strategist

Trading the News: Canada Retail Sales

What’s Expected:

Time of release: 03/21/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: 0.6%

Previous: -2.1%

DailyFX Forecast: 0.2% to 0.8%

Why Is This Event Important:

Canada retail sales are projected to increase 0.6% in January and the rebound in private sector consumption may prop up the Canadian dollar as it raises the outlook for growth. Although Bank of Canada (BoC) Governor Mark Carney scaled back his hawkish tone for monetary policy, a marked rise in household spending may push the central bank head to strike an improved outlook for the region.

Recent Economic Developments

The Upside

Release

Expected

Actual

Net Change in Employment (FEB)

8.0K

50.7K

Industrial Product Price (MoM) (JAN)

0.3%

0.0%

Consumer Price Index (YoY) (JAN)

0.6%

0.5%

The Downside

Release

Expected

Actual

Manufacturing Sales (MoM) (JAN)

0.6%

-0.2%

Wholesale Sales (JAN)

0.4%

0.3%

Gross Domestic Product (MoM) (DEC)

-0.2%

-0.2%

Easing price pressures along with the jump in employment may encourage households to increase their rate of consumption, and a positive development may renew bets for a rate hike as it raises the prospects for future growth. However, the slowing recovery may drag on retail sales as the BoC adopts a more cautious tone for the region, and the central bank may keep the benchmark interest rate at 1.00% throughout 2013 in an effort to stem the downside risks for growth and inflation.

Potential Price Targets For The Release

Forex_USDCAD-_Trading_the_Canada_Retail_Sales_Report_body_ScreenShot089.png, USD/CAD- Trading the Canada Retail Sales Report

Although we’re seeing the relative strength index on the USDCAD fail to maintain the upward trend from the previous year, the pair continues to threaten the consolidation pattern dating back to 2011 as the BoC drops its dovish tone for monetary policy. In turn, we may see a bullish breakout take shape over the coming days as the pair appears to be building a short-term base around the 1.0200 region.

How To Trade This Event Risk

Expectations for a rebound in retail sales instills a bullish outlook for the loonie, and a positive print may pave the way for a long Canadian dollar trade as it reignites bets for a rate hike. Therefore, if household consumption increases 0.6% or greater, we will need to see a red, five-minute candle following the release to establish a sell entry on two-lots of USDCAD. Once these conditions are met, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our winnings.

However, the slowing recovery may continue to drag on private sector, and a dismal release may trigger a bearish reaction in the Canadian dollar as market participants scale back bets for higher borrowing costs. As a result, if the sales report falls short of market expectations, we will carry out the same strategy for a long dollar-loonie trade as the short position laid out above, just in the opposite direction.

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2012

02/22/2013 13:30 GMT

-0.3%

-2.1%

+40

-8

December 2012 Canada Retail Sales

Forex_USDCAD-_Trading_the_Canada_Retail_Sales_Report_body_ScreenShot085.png, USD/CAD- Trading the Canada Retail Sales Report

Retail sales tumbled 2.1% in December to mark the biggest decline since April 2010, led by a 12.1% decline in demands for electronics and appliances, which was followed by a 9.6% decline in department store sales. Indeed, the dismal print weighed on the Canadian dollar, with the USDCAD climbing above the 1.0250 figure, but the loonie regained its footing during the North American trade as the pair closed at 1.0200.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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