– Canada Consumer Prices to Slow for First Time Since October.
– Core Inflation to Slips to 1.1%- Matching Lowest Reading for 2013.
Trading the News: Canada Consumer Price Index
A marked decline in Canada inflation may prompt a further advance in the USD/CAD as it raises the Bank of Canada’s (BoC) scope to revert back to its easing cycle.
What’s Expected:
Why Is This Event Important:
Indeed, BoC Governor Stephen Poloz showed a greater willingness to lower the benchmark interest rate further in an effort to encourage a ‘soft landing’ for the region, and the ongoing threat for disinflation may continue to dampen the outlook for the Canadian dollar as the central bank adopts a more dovish tone for monetary policy.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Net Change in Employment (FEB)
15.0K
-7.0K
Gross Domestic Product (MoM) (DEC)
-0.3%
-0.5%
Retail Sales (MoM) (DEC)
-0.4%
-1.8%
The persistent slack in the real economy may continue to drag on price growth as Governor Poloz softens his outlook for growth, and a marked slowdown in inflation may continue to push the USD/CAD to fresh monthly highs as it fuels bets for a rate cut.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
New Home Price Index (YoY) (JAN)
1.3%
1.5%
Raw Materials Price Index (MoM) (JAN)
1.5%
2.6%
Industrial Product Price (MoM) (JAN)
0.5%
1.4%
Nevertheless, higher home prices along with rising input costs may limit the downside risk for price growth, and a positive development may generate a near-term rebound in the loonie as it raises the fundamental outlook for the Canadian economy.
How To Trade This Event Risk(Video)
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Bearish CAD Trade: Price Growth Slips to 1.0% or Lower
Need green, five-minute candle after the CPI report to consider long USD/CAD entry
If the market reaction favors a bearish Canadian dollar trade, establish long with two position
Set stop at the near-by swing low/reasonable distance from cost; use at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bullish CAD Trade: Canada Inflation Tops Market Forecast
Need red, five-minute candle following the release to look at a short USD/CAD trade
Carry out the same setup as the bearish loonie trade, just in the opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Looking for Higher High Following Breakout of Triangle/Wedge Formation
Relative Strength Index Retains Bullish Trend Carried Over from 2013
Interim Resistance: 1.1310 Pivot to 1.1320 (61.8% expansion)
Interim Support: 1.1050 (50.0% retracement) to 1.1070 (23.6% expansion)
Read More:
Price & Time: USD Goes Bid!
Traders Get it Right as Dollar Hits it Big – What Now?
Fed Hints at 2015 Rate Hike Giving USD Much Needed Lift
Impact that the Canada Consumer Price report has had on CAD during the last month
Period
Data Released
Survey
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
JAN
2014
02/21/2014 13:30 GMT
1.3%
1.5%
-42
-60
January 2014 Canada Consumer Price Index
The Canadian Dollar saw slight strength at the CPI print encompassing prices in January as the YoY figure came in at 1.5% vs. economist estimates of 1.3%. The spike higher in USD/CAD at the release set a high not broken until this past Wednesday’s FOMC Rate Decision. At Yellen’s presser we saw USD/CAD hit highs not seen since 2009 as it rocketed passed the 1.12 level. If we see any weakness here below economist expectations, more fundamental fire will fuel the 2014 breakout.
— Written by David Song, Currency Analyst and Gregory Marks
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx
