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USD/CAD Bearish Pattern to Gather Pace on Upbeat Canada Retail Sales

USD/CAD Bearish Pattern to Gather Pace on Upbeat Canada Retail Sales

2016-06-22 08:00:00
David Song, Strategist

- Canada Retail Sales to Rebound in April.

- Household Consumption Expected to Increase for Third Time in 2016.

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

Trading the News: Canada Retail Sales

A 0.8% rebound in Canada Retail Sales may heighten the appeal of the loonie and spark a near-term decline in USD/CAD as it boosts the outlook for growth and inflation.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

The Bank of Canada (BoC) may largely endorse a wait-and-see approach throughout the remainder of the year as Governor Stephen Poloz turns upbeat towards the economy, and the central bank may gradually move away from its easing cycle after implementing the ‘insurance’ rate-cuts in 2015.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Sales (MoM) (APR)

0.6%

1.0%

Net Change in Employment (MAY)

1.8K

13.8K

Unemployment Rate (MAY)

7.2%

6.9%

The pickup in job growth may encourage Canadian households to increase their rate of consumption, and a positive development may spark a bullish reaction in the loonie as market participants scale back bets for a BoC rate-cut.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (MAY)

2.1%

2.1%

Gross Domestic Product (Annualized) (1Q)

2.8%

2.4%

CFIB Business Barometer (MAY)

--

58.2

However, sticky inflation accompanied by fears of a slower recovery may drag on private spending, and dismal sales report may produce near-term headwinds for the Canadian dollar as it fuels bets for additional monetary support.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Retail Sales Rebounds 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: Canada Household Consumption Disappoints

  • 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

USD/CAD Daily

USD/CAD Daily Chart
  • Long-term outlook for USD/CAD remains tilted to the upside amid the deviating paths for monetary policy, but the pair may continue to give back the rebound from the May low (1.2460) as the pair preserves the downward trending channel carried over from the previous month.
  • Key Resistance: 1.3560 (100% expansion) to 1.3630 (38.2% retracement)
  • Key Support: 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion)

Check out the short-term technical levels that matter for USD/CAD heading into the report!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Impact that Canada Retail Sales report has had on USD/CAD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2016

05/20/2016

12:30 GMT

-0.6%

-1.0%

-3

+11

March 2016 Canada Retail Sales

USD/CAD Chart

Canada Retail Sales slumped 1.0% in March after expanding a revised 0.6% during the previous month. A deeper look at the report showed demand for furniture & home furnishings declined 3.7% to lead the decline, with food & beverage sales contracting 0.4%, while discretionary spending on clothing and accessories increased 0.8% during the same period. The Canadian dollar struggled to hold its ground following the weak consumption report, with USD/CAD climbing above the 1.3100 handle to end the day at 1.3107.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Crosses Important Short-term Resistance on Global Rally in Risk

USD/JPY Technical Analysis: A Return To USD/JPY Of 2008-2011?

EUR/USD Timing Compares Favorably with Early 2000s Base

EUR/USD: Breach of Weekly High to Fuel Reversal From Monthly Open

--- 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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