TheNews

Trading the News: Canada Consumer Price Index (CPI)

Another uptick in Canada’s Consumer Price Index (CPI) along with stickiness in the core rate of inflation may foster a larger pullback in USD/CAD as the Bank of Canada (BoC) ‘expects total CPI inflation to be close to 2 percent from early 2017 onwards.’

What’s Expected:

Why Is This Event Important:

Even though the BoC ‘actively’ discussed more stimulus for the real economy, it seems as though Governor Stephen Poloz and Co. will continue to endorse a wait-and-see approach for monetary policy as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016.’ The risk of overshooting the 2% target for inflation may push the BoC to gradually move away from its easing-cycle, but signs of subdued price growth may encourage the central bank to further support the real economy as the region is anticipated to return to ‘full capacity around mid-2018, materially later than the Bank had anticipated in July.’

How To Trade This Event Risk

Bullish CAD Trade: Canada CPI Picks Up for Second Consecutive Month

• Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
• If market reaction favors a long 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: Inflation Report Falls Short of Market Expectations

• Need green, five-minute candle to favor a long USD/CAD trade.
• Implement same setup as the bullish Canadian dollar trade, just in the opposite direction.

Potential Price Targets For The Release
USD/CAD Daily

• Broader outlook for USD/CAD remains constructive as the pair preserves the upward trending channel carried over from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic, but the recent series of lower highs & lows may pave a larger pullback in the exchange rate especially as the oscillator struggles to push into overbought territory.
• Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
• Interim Support: 1.2980 (61.8% retracement) to 1.3030 (50% retracement)

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