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USD/CAD to Resume Bearish Trend on Strong Canada CPI Report

USD/CAD to Resume Bearish Trend on Strong Canada CPI Report

2014-07-17 17:00:00
David Song, Currency Strategist
Share:

- Canada Headline Inflation to Hold at 2.3%- Fastest Pace of growth Since 2012.

- Core Consumer Price Index to Expand 1.7% for Second Straight Month.

Trading the News: Canada Consumer Price Index (CPI)

Canada’s Consumer Price Index (CPI) may generate a key turn in the USD/CAD as heightening price pressures puts increased pressure on the Bank of Canada (BoC) to adopt a more hawkish tone for monetary policy.

What’s Expected:

USD/CAD to Resume Bearish Trend on Strong Canada CPI ReportUSD/CAD CPI

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though BoC Governor Stephen Poloz talked down the risk for inflation, sticky prices in Canada may continue to prop up interest rate expectations as the central bank adopts a more balanced view for the economy.

For LIVE SSI Updates Ahead of Canada’s Inflation Report, Join DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Sales (MoM) (MAY)

1.0%

1.6%

Building Permits (MoM) (MAY)

2.0%

13.8%

Retail Sales (MoM) (APR)

0.6%

1.1%

The pickup in private sector consumption may encourage faster price growth in Canada as the BoC looks to achieve a ‘soft landing’ in the housing market, and a stronger-than-expected CPI print may spur a more material shift in the policy outlook as the central bank softens its dovish tune.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Net Change in Employment (JUN)

20.0K

-9.4K

Business Outlook Future Sales (2Q)

30.00

24.00

Gross Domestic Product (MoM) (APR)

0.2%

0.1%

Nevertheless, the ongoing slack in the real economy may continue to dampen the outlook for inflation, and an unexpected slowdown in price growth may generate a further advance in the USD/CAD as it drags on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada CPI Rises an Annulized 2.3% or Higher

  • 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: Headline Reading for Inflation 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

USD/CAD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Despite bullish break in RSI, downside remains favored given series of lower highs & lows.
  • Interim Resistance: 1.0820 (61.8% retracement) to 1.0850 (38.2% retracement)
  • Interim Support: 1.0580 (61.8% retracement) to 1.0600 (61.8% retracement)

Read More:Price & Time: Several Major Exchange Rates At Pivotal Levels

Gold Gains As Geopolitical Tensions Intensify, Crude Recovery At Risk

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)

MAY

2014

06/20/2014 12:30 GMT

2.0%

2.3%

-55

-63

May 2014 Canada Consumer Price Index (CPI)

USD/CAD to Resume Bearish Trend on Strong Canada CPI Report

The headline reading for Canada inflation climbed to an annualized 2.3% in May to mark the fastest pace of growth since February 2011, while the core CPI increased 1.7% during the same period amid forecasts for a 1.5% print. The stronger-than-expected prints spurred a bullish reaction in the Canadian dollar, with the USD/CAD slipping below the 1.0800 handle, and the pair traded lower throughout the North American trade as the pair ended the day at 1.0751.

--- 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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