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USD/CAD to Eye Monthly Highs on Dismal Canada Retail Sales

USD/CAD to Eye Monthly Highs on Dismal Canada Retail Sales

David Song, Shuyang Ren,

- Canada Retail Sales to Contract for First Time Four Months.

- Will a Slowdown in Private Consumption Fuel Bets for More BoC Easing?

Trading the News: Canada Consumer Price Index (CPI)

A slowdown in Canada Retail Sales may spur a larger advance in USD/CAD as the Bank of Canada (BoC) adopts a more cautious outlook for the region.

For more updates, sign up for David's e-mail distribution list.

What’s Expected:

USD/CAD Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

Following the surprise rate cut at the January 21 meeting, a further deterioration in the growth outlook may prompt BoC Governor Stephen Poloz to relay a more dovish tone for monetary policy and show a greater willingness to further reduce the benchmark interest rate in an effort to generate a stronger recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (JAN)

--

-3.1%

Ivey Purchasing Manager Index s.a. (JAN)

53.4

45.4

Business Outlook Future Sales (4Q)

29.00

8.00

Waning business confidence paired with growing concerns surrounding the housing market may drag on private-sector consumption, and a dismal sales report may drive fresh weekly highs in USD/CAD amid the deviation in the policy outlook.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Industrial Product Price (MoM) (DEC)

-0.6%

-1.6%

Net Change in Employment (JAN)

5.0K

35.4K

Consumer Price Index (YoY) (DEC)

1.6%

1.5%

Nevertheless, easing inflation along with the ongoing improvement in the labor market may boost household spending, and a better-than-expected print may push USD/CAD back towards the monthly low (1.2350) as it limit’s the BoC’s scope to implement offer lower borrowing-costs.

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

How To Trade This Event Risk(Video)

Bearish CAD Trade: Canada Retail Sales Slip 0.4% or Greater

  • Need green, five-minute candle following a dismal sales report to consider long USD/CAD entry.
  • If the market reaction favors a bearish Canadian dollar trade, establish long with two position.
  • Set stop at the near-by swing low/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.

Bullish CAD Trade: Private-Sector Consumption Tops Market Forecast

  • Need red, five-minute candle following the release to look at a short USD/CAD trade.
  • Carry out the same setup as the bearish loonie trade, just in the opposite direction.

Potential Price Targets For The Release

USD/CAD Daily Chart

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Need a break of the near-term bearish momentum in RSI to favor a resumption of the long-term bullish trend.
  • Interim Resistance: 1.2797 (February high) to 1.2800 (38.2% expansion)
  • Interim Support: 1.2340 (38.2% retracement) to 1.2390 (161.8% expansion)

Read More:

Price & Time: Gold Rebounds

Few Changes in Positioning Keeps USD on Rangebound Track

Impact that the Canada Retail Sales 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)

NOV

2014

01/23/2015 13:30 GMT

-0.2%

0.4%

-22

-17

November 2014 Canada Retail Sales

USD/CAD Chart

Canada’s Retail Sales unexpectedly increased 0.4% in November, led by a 5.2% rise in discretionary spending on clothing and accessories. Indeed, lower energy price may continue to prop up household spending as it boosts disposable incomes, but the sharp decline in oil may present a larger headwind for the overall economy as the Bank of Canada (BoC) defies market expectations and cuts the benchmark interest rates in an effort to promote investment. Nevertheless, the better-than-expected print pushed USD/CAD below the 1.2400 handle, but the pair bounced back during the North America trade to end the session at 1.2422.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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