USD/CAD to Test Range on Upbeat Canada Retail Sales Report
- Canada Retail Sales to Increase for Third Straight Month.
- Sales ex Auto to Rise for Fifth Time in Last Seven Months .
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Trading the News: Canada Retail Sales
A further expansion in Canada Retail Sales may heighten the appeal of the loonie and threaten the range-bound price action in USD/CAD as boosts the outlook for growth and inflation.
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Why Is This Event Important:
Despite the technical recession in Canada, data prints pointing to a marked recovery in the third-quarter may encourage the Bank of Canada (BoC) to endorse a wait-and-see approach throughout 2015, and the central bank may show a greater willingness to conclude its easing cycle in the year ahead as Governor Stephen Poloz sees the economy on a firmer footing.
Expectations: Bullish Argument/Scenario
|Housing Starts (AUG)||190.5K||216.9K|
|Net Change in Employment (AUG)||-5.0K||12.0K|
|Gross Domestic Product (Annualized) (2Q)||-1.0%||-0.5%|
Signs of a more meaningful recovery accompanied by the ongoing improvement in the labor market may generate a strong boost for private consumption, and a positive development may spur a bullish reaction in the Canadian dollar as it curbs expectations for a further reduction in the benchmark interest rate.
Risk: Bearish Argument/Scenario
|Wholesale Trade Sales (MoM) (JUL)||0.8%||0.0%|
|Industrial Product Price (MoM) (JUL)||0.0%||0.7%|
|Consumer Price Index (YoY) (JUL)||1.3%||1.3%|
In contrast, a soft retail sales report may fuel fears for a more slowdown in Canada, and a dismal print may prompt the central bank to further insulate the real economy in an effort to pull the region out of the technical recession.
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How To Trade This Event Risk(Video)
Bullish CAD Trade: Retail Sales Expands Another 0.8% or Greater
- Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
- If market reaction favors a bullish loonie trade, sell USD/CAD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for 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: Private-Sector Consumption Fails to Meet Market Forecast
- Need green, five-minute candle to favor a long USD/CAD trade.
- Implement same setup as the bullish Canadian dollar trade, just in reverse.
Potential Price Targets For The Release
Chart - Created by David Song
- Long-term outlook for USD/CAD remains bullish amid the failed test of the August low (1.2950), but the pair may continue to consolidate within a wedge/triangle formation as market participants weigh the outlook for .
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has flipped back to net-short USD/CAD on September 18, with the ratio approaching recent extremes as it slips to -2.50 as 28% of traders are long.
- Interim Resistance: 1.3320 (38.2% expansion) to 1.3352 (August high)
- Interim Support: 1.2940 (78.6% retracement) to 1.2930 (61.8% expansion)
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Impact that Canada Retail Sales has had on USD/CAD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
June 2015 Canada Retail Sales
Canada Retail Sales exceeded market expectations as household spending increased 0.6% in June following a revised 0.9% expansion the month prior. A deeper look at the report showed increased demand for electronics/appliances accompanied by higher gasoline receipts, but discretionary spending on clothing slipped 0.4% in June. Despite the better-than-expected prints, the Bank of Canada (BoC) may see scope to further support the region as Governor Stephen Poloz continues to monitor the impact of lower oil prices on the real economy. The initial market reaction was short-lived, with USD/CAD snapping back above the 1.3100 handle during the North American trade to end the day at 1.3179.
--- Written by David Song, Currency Analyst and Shuyang Ren
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