– Canada Headline Inflation to Hold at 2.3%- Fastest Pace of growth Since 2012.
– Core Consumer Price Index to Expand 1.7% for Second Straight Month.
Trading the News: Canada Consumer Price Index (CPI)
Canada’s Consumer Price Index (CPI) may generate a key turn in the USD/CAD as heightening price pressures puts increased pressure on the Bank of Canada (BoC) to adopt a more hawkish tone for monetary policy.
What’s Expected:
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Why Is This Event Important:
Even though BoC Governor Stephen Poloz talked down the risk for inflation, sticky prices in Canada may continue to prop up interest rate expectations as the central bank adopts a more balanced view for the economy.
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Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Manufacturing Sales (MoM) (MAY)
1.0%
1.6%
Building Permits (MoM) (MAY)
2.0%
13.8%
Retail Sales (MoM) (APR)
0.6%
1.1%
The pickup in private sector consumption may encourage faster price growth in Canada as the BoC looks to achieve a ‘soft landing’ in the housing market, and a stronger-than-expected CPI print may spur a more material shift in the policy outlook as the central bank softens its dovish tune.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Net Change in Employment (JUN)
20.0K
-9.4K
Business Outlook Future Sales (2Q)
30.00
24.00
Gross Domestic Product (MoM) (APR)
0.2%
0.1%
Nevertheless, the ongoing slack in the real economy may continue to dampen the outlook for inflation, and an unexpected slowdown in price growth may generate a further advance in the USD/CAD as it drags on interest rate expectations.
How To Trade This Event Risk(Video)
Bullish CAD Trade: Canada CPI Rises an Annulized 2.3% or Higher
Need red, five-minute candle following the CPI report to consider short USD/CAD entry
If the market reaction favors a bullish Canadian dollar trade, establish short with two position
Set stop at the near-by swing high/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
Bearish CAD Trade: Headline Reading for Inflation Disappoints
Need green, five-minute candle following the release to look at a long USD/CAD trade
Carry out the same setup as the bullish loonie trade, just in the opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Despite bullish break in RSI, downside remains favored given series of lower highs & lows.
Interim Resistance: 1.0820 (61.8% retracement) to 1.0850 (38.2% retracement)
Interim Support: 1.0580 (61.8% retracement) to 1.0600 (61.8% retracement)
Read More:Price & Time: Several Major Exchange Rates At Pivotal Levels
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Impact that the Canada CPI 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)
MAY
2014
06/20/2014 12:30 GMT
2.0%
2.3%
-55
-63
May 2014 Canada Consumer Price Index (CPI)
The headline reading for Canada inflation climbed to an annualized 2.3% in May to mark the fastest pace of growth since February 2011, while the core CPI increased 1.7% during the same period amid forecasts for a 1.5% print. The stronger-than-expected prints spurred a bullish reaction in the Canadian dollar, with the USD/CAD slipping below the 1.0800 handle, and the pair traded lower throughout the North American trade as the pair ended the day at 1.0751.
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx
