Resilient Core Retail Sales to Curb Canadian Dollar Weakness
- Canada Retail Sales to Hold Flat After Expanding for Last Four Consecutive Month.
- Sales Excluding Autos to Rise for Fifth Straight Month.
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Trading the News: Canada Retail Sales
Even though Canada Retail Sales are projected to hold flat in December, a pickup in core spending may curb the near-term rebound in USD/CAD and keep the exchange rate within a narrow range as it highlights an improved outlook for growth and inflation.
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Why Is This Event Important:
Waning demand for large-ticket items may keep the Bank of Canada (BoC) on the sidelines as the central bank warns ‘negative wealth and income effects will persist’ over the policy horizon, and Governor Stephen Poloz and Co. may preserve the highly accommodative policy stance throughout 2017 in an effort to encourage a stronger recovery. Nevertheless, signs of stronger consumption may prompt the BoC to soften its cautious tone, and the central bank may sound more upbeat over the coming months as ‘the global economy is strengthening largely as expected and prices of some commodities, including oil, have risen.’
Expectations: Bullish Argument/Scenario
|Wholesale Trade Sales (MoM) (DEC)||0.4%||0.7%|
|Net Change in Employment (JAN)||-10.0K||48.3K|
|Consumer Price Index (YoY) (DEC)||1.7%||1.5%|
Easing price pressures paired with the ongoing improvement in the labor market may fuel an unexpected pickup in retail spending, and a positive development may heighten the appeal of the Canadian dollar as it pushes the BoC to gradually move away from its accommodative policy stance.
Risk: Bearish Argument/Scenario
|Existing Home Sales (MoM) (JAN)||--||-1.3%|
|Building Permits (MoM) (DEC)||-3.5%||-6.6%|
|BoC Senior Loan Officer Survey (4Q)||--||-2.6|
However, narrowing home purchases accompanied by the slowdown in private-sector lending may drag on household consumption, and a downturn in retail spending may fuel the near-term rebound in USD/CAD as it encourages the BoC to keep the benchmark interest rate at the record-low for an extended period of time.
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How To Trade This Event Risk(Video)
Bullish CAD Trade: Headline & Core Sales Rise in December
- Need to see red, five-minute candle following the report 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 Consumption 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
Chart - Created Using Trading View
- Lack of momentum to close below the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.3020 (50% expansion) raises the risk for a larger recovery in USD/CAD, with the first topside hurdle coming in around 1.3210 (61.8% retracement), which lines up with the February high (1.3212); however, the pair may face range-bound conditions over the near-term as the Relative Strength Index (RSI) remains stuck in the wedge/triangle formation carried over from late-2016.
- Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
- Interim Support: 1.2980 (61.8% retracement) to 1.3020 (50% expansion)
Check out the short-term technical levels that matter for USD/CAD heading into the report!
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Impact that Canada Retail Sales report has had on USD/CAD during the previous release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
November 2016 Canada Retail Sales
Chart - Created Using Trading View
Canada Retail Sales increased another 0.2% in November after expanding a revised 1.2% the month prior, while the core measure for household consumption unexpectedly advanced 0.1% during the same period amid forecasts for a flat print. A deeper look at the report showed demand for building materials climbed 2.9% in November to lead the advance, with furniture sales rising 2.0%, while discretionary spending on clothing narrowed 0.1% during the same period. The market reaction to the mixed data prints were short-lived, with USD/CAD struggling to hold above the 1.3350 region as the pair closed the day at 1.3309.
--- Written by David Song, Currency Analyst
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