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Slowing Canada Core CPI to Foster USD/CAD Rebound

Slowing Canada Core CPI to Foster USD/CAD Rebound

2016-09-23 08:00:00
David Song, Strategist
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- Canada Consumer Price Index (CPI) to Pick Up for First-Time Since April.

- Core Rate of Inflation to Slow for First-Time Since May.

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

Trading the News: Canada Consumer Price Index (CPI)

Despite forecasts for a uptick in Canada’s Consumer Price Index (CPI), a marked slowdown in the core rate of inflation may drag on the loonie and spur a near-term rebound in USD/CAD as it puts pressure on the Bank of Canada (BoC) to further support the real economy.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Easing price pressures may push the BoC to adopt a dovish outlook for monetary policy as the central bank warns ‘risks to the profile for inflation have tilted somewhat to the downside since July,’ and Governor Stephen Poloz may prepare Canadian households and businesses for lower borrowing-costs as global growth in the first half of 2016 was slower than the Bank had projected.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Net Change in Employment (AUG)

14.0K

26.2K

Industrial Product Price (MoM) (JUL)

-0.3%

0.2%

CFIB Business Barometer (AUG)

--

59.8

Sticky factory-gate prices paired with the rebound in business sentiment may generate a pickup in both the headline and core rate of inflation, and signs of stick price growth may boost the appeal of the Canadian dollar as market participants scale back bets for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Manufacturing Sales (MoM) (JUL)

1.0%

0.1%

Existing Home Sales (AUG)

--

-3.1%

Retail Sales (MoM) (JUN)

0.5%

-0.1%

Nevertheless, the slowdown in private-sector consumption may push Canadian firms to offer discounted prices, and a dismal inflation report may trigger a bearish reaction in the loonie as it drags on interest-rate expectations.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Headline & Core CPI Beat Market Expectations

  • 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 Inflation Report 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
  • USD/CAD may face a larger pullback as the pair appears to have made a failed run at the July high (1.3253), with a break/close below the Fibonacci overlap around 1.2930 (61.8% expansion) to 1.2990 (23.6% retracement) raises the risk for a move back towards the monthly low (1.2821).
  • 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 Consumer Price Index (CPI) 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)

JUL

2016

08/19/2016

12:30 GMT

1.4%

1.3%

+23

+27

July 2016 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute

USD/CAD Chart

Canada’s Consumer Price Index (CPI) slowed to an annualized 1.3% July from 1.5% the month prior, while the core rate of inflation held steady at 2.1% for the third consecutive month. A deeper look at the report showed prices for clothing/footwear slipped another 1.6% in July, with transportation costs narrowing 1.6% during the same period, while food costs picked up 0.3% to mark the first rise since February. The Canadian dollar struggled to hold its ground following the inflation report, with USD/CAD climbing above the 1.2850 region to end the day at 1.2861.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500 Tech Update: Looking to Short-term Chart for Direction

Silver Prices: Triangle Morphs into Larger Version of Itself, Wait for the Break

Few US Data Pre-FOMC Keeps Markets on Edge

Weekly Trading Forecast: Fed and BoJ Rate Decisions, Brexit Fears Carry More than Currency Risks

--- 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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