Post-BoC Canadian Dollar Rally Vulnerable to Softening CPI

Canada Consumer Price Index (CPI) to Slow for Second Month in June.

Core Inflation to Hold Steady during Annualized 1.3% for Six Consecutive Months.

Retail Crowd Remain Stubbornly Net-Long USD/CAD Since Jun 7, When It Traded Near 1.3481.

Trading a News: Canada Consumer Price Index (CPI)

Canada CPI

Another slack in Canada’s Consumer Price Index (CPI) might tame a pointy debasement in USD/CAD as it encourages a Bank of Canada (BoC) to adopt a some-more gradually trail in normalizing financial policy.

Why Is This Event Important:

Signs of softer-than-expected acceleration might pull a BoC to a sidelines as ‘very clever enlargement of a initial entertain is approaching to assuage over a change of a year,’ and Governor Stephen Poloz and Co. might validate a wait-and-see proceed during a subsequent assembly on Sep 6 as ‘geopolitical doubt still clouds a tellurian outlook.’

Nevertheless, stickiness in a core rate of acceleration accompanied by a serve enlargement in domicile expenditure might inspire a BoC to adopt a some-more hawkish tinge as ‘the outlay opening is now projected to tighten around a finish of 2017, progressing than a Bank expected in a April Monetary Policy Report (MPR). In turn, BoC officials might continue to exercise aloft borrowing-costs over a entrance months as a executive bank design to grasp a 2% aim for cost enlargement by a center of 2018.

Impact that a CPI report has had on USD/CAD during a previous release

May 2017 Canada Consumer Price Index (CPI)

USD/CAD 5-Minute

USD/CAD Chart

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Canada’s Consumer Price Index (CPI) slipped to an annualized 1.3% in May from 1.6% a month prior, while a core rate of acceleration hold solid during 1.3% per annum amid forecasts for a 1.4% print. A deeper demeanour during a news showed a decrease was mostly led by reduce appetite prices, with travel costs squeezing 0.7% in May, while prices for wardrobe and shoes bounced behind 0.5% after constrictive 1.1% in April. The Canadian dollar mislaid belligerent following a softer-than-expected acceleration report, with USD/CAD branch around forward of a 1.3200 hoop to finish a day during 1.3268.

How To Trade This Event Risk(Video)

Bearish CAD Trade: Canada Inflation Report Continues to Disappoint

  • Need a green, five-minute candle following a news to cruise a prolonged USD/CAD position.
  • If marketplace greeting favors a bearish loonie trade, buy USD/CAD with dual apart lots.
  • Set stop during a near-by pitch low/reasonable stretch from entry; demeanour for during slightest 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial aim is met, set reasonable limit.

Bullish CAD Trade: Headline Core CPI Exceed Market Expectations

  • Need a red, five-minute USD/CAD candle to cruise a prolonged loonie position.
  • Implement a same setup as a bearish loonie trade, only in reverse.

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart – Created Using Trading View

  • Downside targets sojourn on a radar as USD/CAD extends a array of lower-highs from progressing this week, while a Relative Strength Index (RSI) sits oversold domain for a initial time given 2014.
  • Break/close subsequent a Fibonacci overlie around 1.2510 (78.6% retracement) to 1.2540 (78.6% expansion) opens adult a subsequent segment of seductiveness around 1.2420 (61.8% expansion) to 1.2440 (23.6% expansion).
  • Keep in mind that USD/CAD will be during risk for a near-term improvement once a RSI pushes above 30 and breaks a bearish arrangement carried over from May.
  • Interim Resistance: 1.2940 (38.2% expansion) to 1.2980 61.8% retracement)
  • Interim Support: 1.2420 (61.8% expansion) to 1.2440 (23.6% expansion)

USD/CAD Sentiment

Track Retail Sentiment in Real-Time with a New Gauge Developed by DailyFX

Retail merchant information shows 74.6% of traders are net-long USD/CAD with a ratio of traders prolonged to brief during 2.94 to 1. In fact, traders have remained net-long given June 07 when USDCAD traded nearby 1.3481; cost has changed 6.6% reduce given then. The series of traders net-long is 12.7% reduce than yesterday and 1.0% reduce from final week, while a series of traders net-short is 17.3% reduce than yesterday and 9.7% reduce from final week.

— Written by David Song, Currency Analyst

To hit David, e-mail dsong@dailyfx.com. Follow me on Twitter during @DavidJSong.

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