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USD/CAD to Stage Larger Pullback on Strong Canada Retail Sales Report

USD/CAD to Stage Larger Pullback on Strong Canada Retail Sales Report

2016-11-22 08:00:00
David Song, Strategist
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- Canada Retail Sales to Increase for First Time Since April.

- Will a Rebound in Household Consumption Push the BoC to Keep Rates on Hold in December?

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

Trading the News: Canada Retail Sales

A 0.6% rebound in Canada Retail Sales may spark a bullish reaction in the loonie and lead to a near-term pullback in USD/CAD should the data print highlight an improved outlook for growth and inflation.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Even though the Bank of Canada (BoC) keeps the door open to further embark on its easing-cycle, a marked pickup in household spending may encourage Governor Stephen Poloz and Co. to retain the current policy at the last 2016-meeting on December 7 as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016, supported by accommodative monetary and financial conditions and federal fiscal measures.’ Nevertheless, another disappointing sales report may push the BoC to ‘actively’ discuss additional measures in 2017 as the region is expected to return to full-capacity ‘materially later than the Bank had anticipated in July.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Net-Change in Employment (OCT)

-15.0K

43.9K

Gross Domestic Product (YoY) (AUG)

1.3%

1.3%

Business Outlook Future Sales (3Q)

--

12.00

The pickup in job growth accompanied by signs of a stronger-than-expected recovery may spur a meaningful rebound in household spending, and a positive development may fuel a near-term correction in USD/CAD as market participants scale back bets for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (OCT)

1.5%

1.5%

Industrial Product Price (MoM) (SEP)

0.4%

0.4%

BoC Senior Loan Officer Survey (3Q)

--

3.3

However, sticky price growth paired with the slowdown in private-sector credit may weigh on consumption, and another dismal sales report may continue to cast a bearish outlook for the Canadian dollar as it drags on interest-rate expectations.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Retail Spending Rebounds 0.6% 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 long loonie trade, short 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 Spending 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

Chart - Created Using Trading View

  • Failure to push above the former-support zone around 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion) raises the risk for a near-term pullback, with the first downside target coming in around 1.3350 (78.6% retracement) followed by the Fibonacci overlap around 1.3290 (61.8% expansion) to 1.3310 (38.2% retracement).
  • Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
  • Interim Support: 1.2980 (61.8% retracement) to 1.3030 (50% retracement)

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

Impact that Canada’s 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)

AUG

2016

10/21/2016

12:30 GMT

0.3%

-0.1%

+102

+99

August 2016 Canada Retail Sales

USD/CAD 5-Minute

USD/CAD Chart

Household spending in Canada unexpectedly slipped another 0.1% in August after contraction a revised 0.2% the month prior, while separate report showed the Consumer Price Index (CPI) advancing an annualized 1.3% in September amid projections for a 1.4% print. The details of the report showed discretionary spending on clothing & accessories fell 0.5%, with demand for motor vehicles & parts narrowing 0.5% as well, while gasoline receipts increased 0.5% during the same period. The Canadian dollar sold-off following the series of disappointing data prints, with USD/CAD climbing above the 1.3300 handle to end the day at 1.3333.

Get our top trading opportunities of 2016 HERE

Read More:

US Dollar Whiplash Ends with a Trump Bump

GBP/JPY Technical Analysis: New Trend in Play after 800-Pip, 3-Day Romp

USD/CAD Technical Analysis: Pending Trade Talks & U.S. Inflation Weakens CAD

S&P 500 - Bears Got Trumpled, Short-term Trading Levels Noted

--- 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.

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