TheNews

Trading the News: Canada Consumer Price Index (CPI)

A pickup in Canada’s Consumer Price Index (CPI) may heighten the appeal of the loonie and fuel a larger pullback in USD/CAD as it encourages the Bank of Canada (BoC) to retain a wait-and-see approach in 2016.

What’s Expected:



Why Is This Event Important:

With the BoC largely endorsing a neutral outlook for monetary policy, it seems as though the central bank is approaching the end of its easing cycle, and signs of sticky price growth may prompt Governor Stephen Poloz to adopt a more hawkish tone over the coming months as the risks to the inflation outlook are ‘roughly balanced.’

However, the protracted recovery may push firms may offer discounted prices amid low input costs, and an softer-than-expected inflation report may renew the bearish sentiment surrounding the loonie as market participants look for additional monetary support in Canada.

How To Trade This Event Risk

Bullish CAD Trade: Sticky Inflation Dampens Bets for BoC Rate-Cut in 2016

• Need to see red, five-minute candle following the release 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: Headline, Core CPI 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 reverse.

Potential Price Targets For The Release
USD/CAD Daily

• Long-term outlook remains tilted to the upside USD/CAD amid the broader series of higher highs & lows in the exchange rate, but the sharp pullback in the Relative Strength Index (RSI) may foreshadow a larger correction in the dollar-loonie as the oscillator comes off of overbought territory and fails to preserve the bullish formation from back in November.
• Interim Resistance: 1.4660 (78.6% retracement) to 1.4730 (78.6% expansion)
• Interim Support: 1.3420 (38.2% expansion) to 1.3460 (61.8% retracement)

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