TheNews

Trading the News: Canada Consumer Price Index (CPI)

Despite forecasts for a uptick in Canada’s Consumer Price Index (CPI), a marked slowdown in the core rate of inflation may drag on the loonie and spur a near-term rebound in USD/CAD as it puts pressure on the Bank of Canada (BoC) to further support the real economy.

What’s Expected:

Why Is This Event Important:

Easing price pressures may push the BoC to adopt a dovish outlook for monetary policy as the central bank warns ‘risks to the profile for inflation have tilted somewhat to the downside since July,’ and Governor Stephen Poloz may prepare Canadian households and businesses for lower borrowing-costs as global growth in the first half of 2016 was slower than the Bank had projected'.

How To Trade This Event Risk

Bullish CAD Trade: Headline & Core CPI Beat Market Expectations

• 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: Canada Inflation 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
USD/CAD Daily

• USD/CAD may face a larger pullback as the pair appears to have made a failed run at the July high (1.3253), with a break/close below the Fibonacci overlap around 1.2930 (61.8% expansion) to 1.2990 (23.6% retracement) raises the risk for a move back towards the monthly low (1.2821).
• Key Resistance: 1.3560 (100% expansion) to 1.3630 (38.2% retracement)
• Key Support: 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion)

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