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Weak Canada CPI to Fuel USD/CAD Rebound- Monthly Open Range in Focus

Weak Canada CPI to Fuel USD/CAD Rebound- Monthly Open Range in Focus

2016-10-21 08:00:00
David Song, Strategist
Share:

- Canada Consumer Price Index (CPI) to Pick Up for First Time Since April.

- Core Rate of Inflation to Expand 1.8% for Second-Month.

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

Trading the News: Canada Consumer Price Index (CPI)

A sharp rebound in Canada’s Consumer Price Index (CPI) may heighten the appeal of the Canadian dollar, but another downtick in the core rate of inflation may fuel the near-term rebound in USD/CAD as puts increased pressure on the Bank of Canada (BoC) to further support the real economy.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

The BoC may continue to ‘actively’ discuss more stimulus for the real economy amid the ongoing adjustment to the oil price shock, and the central bank may reestablish its easing cycle over the coming months as Governor Stephen Poloz and Co. now anticipate the economy to reach full-capacity ‘materially later than the Bank had anticipated in July.’ In turn, USD/CAD may continue to retrace the decline from earlier this year, but the BoC may preserve its current policy throughout the remainder of 2016 as the central bank argues the risks surrounding the inflation outlook are ‘roughly balanced.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Business Outlook Future Sales (3Q)

--

12.00

Net Change in Employment (SEP)

7.5K

67.2K

Gross Domestic Product (YoY) (JUL)

1.0%

1.3%

Improved business confidence accompanied by the sharp pickup in employment may spark a meaningful pickup in price growth, and a positive development may trigger a bullish reaction in the Canadian dollar as market participants scale back bets for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BoC Senior Loan Officer Survey (3Q)

--

3.3

Industrial Product Price (MoM) (AUG)

-0.1%

-0.5%

Retail Sales (MoM) (JUL)

0.1%

-0.1%

However, easing factory-gate prices paired with the slowdown in private-sector credit may encourage Canadian firms to offer discounted prices, and another dismal inflation report may push USD/CAD back towards the monthly high (1.3278) as it fuels bets for a BoC rate-cut.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada CPI Rebounds in September

  • Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
  • If market reaction favors a long 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: Headline & Core Inflation Fall Short of 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 the opposite direction.

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • USD/CAD may work its way back towards the top of the recent range as it snaps back from a fresh monthly low (1.3006), with the pair marking a failed run at the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.2990 (23.6% retracement); will keep a close eye on the Relative Strength Index (RSI) as it retains the downward trend carried over from the summer months, with a break of the bearish formation raising the risk for a broader advance in the exchange rate.
  • Interim Resistance: 1.3300 (50% retracement) to 1.3310 (38.2% retracement)
  • Interim Support: 1.2764 (August low) to 1.2770 (38.2% expansion)

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

Impact that Canada’s CPI 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)

AUG

2016

09/23/2016

12:30 GMT

1.4%

1.1%

+97

+129

August 2016 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute

USD/CAD Chart

Canada’s Consumer Price Index (CPI) unexpectedly slowed to an annualized 1.1% from 1.3% in July, with the core rate of inflation largely following suit, with the figure narrowing to 2.0% from 1.8% during the same period. A deeper look at the report showed the slowdown was drive by a 0.9% in gasoline prices, with transportation costs also falling 0.5%, while prices for clothing & footwear picked up 1.1% after contracting 1.6% in July. The Canadian dollar tumbled lower following the weaker-than-expected prints, with USD/CAD climbing above the 1.3100 handle to end the day at 1.3165.

Get our top trading opportunities of 2016 HERE

Read More:

COT-Speculative US Dollar Buying Frenzy

Earnings, ECB and Inflation to Headline Heavy Data Week

Silver Prices: Dead Cat Bounce Keeps Bias Tilted Lower

DAX Battle Lines Drawn as Index Looks to Regain 2016 Losses

--- 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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