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Bearish USD/CAD Break in Focus- Canada CPI to Trigger Fresh Lows?

Bearish USD/CAD Break in Focus- Canada CPI to Trigger Fresh Lows?

David Song, Strategist

- 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.

For LIVE SSI Updates Ahead of Canada’s CPI Print, Join DailyFX on Demand

Expectations: Bullish Argument/Scenario




Existing Home Sales (MoM) (MAY)



Net Change in Employment (MAY)



Average Weekly Earnings (YoY) (MAR)



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




Ivey Purchasing Manager Index s.a. (MAY)



Gross Domestic Product (Annualized) (1Q)



Retail Sales (MoM) (MAR)



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


Bearish USD/CAD Break in Focus- Canada CPI to Trigger Fresh Lows?

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


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)



05/23/2014 12:30 GMT





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 Follow me on Twitter at @DavidJSong.

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