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Trading the News: Canada Retail Sales

A drop in Canada Retail Sales may trigger fresh monthly highs in the USDCAD as the slowing recovery dampens the risk of seeing a Bank of Canada (BoC) rate hike.

What’s Expected:

Time of release:08/22/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: -0.4%

Previous: 1.9%

DailyFX Forecast: -0.8% to -0.2%

Why Is This Event Important:

Indeed, threats of a further slowdown in economic activity may prompt BoC Governor Stephen Poloz to retain the benchmark interest rate at 1.00% for an extended period of time, which should keep the USDCAD within the bullish trend carried over from the beginning of the year.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Wholesale Trade Sales (MoM) (JUN)

-0.5%

-2.8%

Manufacturing Sales (MoM) (JUN)

0.3%

-0.5%

Net Change in Employment (JUL)

10.0K

-39.4K

The recent batch of dismal data certainly raises the risk of seeing a marked decline in retail sales, and the Canadian dollar may face further headwinds over the remainder of the week as weakens the prospects for a stronger recovery.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Average Weekly Earnings (YoY) (MAY)

--

2.5%

Gross Domestic Product (YoY) (MAY)

1.6%

1.6%

Quarterly Gross Domestic Product (Annualized) (1Q)

2.3%

2.5%

Nevertheless, the pickup in wage growth may attribute to a better-than-expected sales reading, and a positive development may produce a short-term correction in the USDCAD as in renews bets for higher borrowing costs.

How To Trade This Event Risk(Video)

Bearish CAD Trade: Retail Sales Contracts 0.4% or greater

  • Need to see green, five-minute candle following the print to consider long USDCAD position
  • If the reaction favors a buy trade, initiate long with two-lots of USDCAD
  • Place stop at the near-by swing low/reasonable distance from entry; use 1:1 risk-to-reward
  • Move stop to breakeven on second position once initial target is met, set reasonable limit
Bullish CAD Trade: Fed adjusts policy outlook to remain accommodative; retains dovish tone

  • Need red, five-minute candle for the release to look at a long USDCAD entry
  • Implement same steps as the bullish trade, just reverse.
Potential Price Targets For The Release

Forex_USDCAD_to_Eye_Fresh_Highs_as_Canada_Retail_Sales_Slump_body_ScreenShot335.png, USDCAD to Eye Fresh Highs as Canada Retail Sales Slump
  • Preserves the upward trending channel dating back to the beginning of the year
  • Break above the 23.6% Fibonacci retracement opens 1.0540-50 (100% Fib expansion)
  • Watch the Relative Strength Index as it approaches 70
  • Former resistance may provide soft support (1.0420-30, 38.2% retracement)
Impact that the Canada Retail Sales report has had on CAD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY 2013

07/23/2013 12:30 GMT

0.4%

1.9%

-28

-47

May 2013 Canada Retail Sales

USDCAD 5-Minute

Forex_USDCAD_to_Eye_Fresh_Highs_as_Canada_Retail_Sales_Slump_body_ScreenShot334.png, USDCAD to Eye Fresh Highs as Canada Retail Sales SlumpHousehold spending increased another 1.9% in May to mark the biggest advance since March 2010, which was largely driven by a 4.3% rise in demands for motor vehicles and parts. The marked rise in private consumption propped up the Canadian dollar, with the USDCAD pushing below the 1.0300 handle, and the loonie continued to gain ground throughout the day as the pair closed at 1.0285.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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