USD/CAD – Trading Canada’s Inflation and Demand Data

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USD/CAD - Trading Canada's Inflation and Demand Data

Tomorrow, we are going to get Canadian inflation data in the form of CPI growth, and demand data in the form of retail sales. The USD/CAD has been consolidating this week after marking a fresh high on the year at 1.1673. Let’s see what we can expect after the release of the data points.
CAN CPI m/m (Nov.)
Forecast: -0.2%
Previous: 0.1%
Core CPI m/m (Nov.)
Forecast: 0.1%
Previous: 0.3%
Inflation data has been subdued, and November’s print is not expected to show any rebound. The headline reading is expected to fall below 0, and the core reading is essentially flat. This expectation confirms the recent decline in CAD against the USD. If data is in-line with expectations, the USD/CAD should be able to find support, especially after some short-term correction already. Now, if inflation is even lower than expected, we have a stronger case that USD/CAD will be supported, with risk of breaking the 1.1673 high.
CAN Retail Sales m/m (Nov.)
Forecast: -0.4%
Previous: 0.8%
Core Retail Sales m/m (Nov.)
Forecast: 0.2%
Previous: 0.0%
Retail Sales is expected to decline in  November, another reason the CAD has been soft. The reaction should be similar to the way the market reacts to the inflation data, but it is likely that inflation data will trump retail sales data in terms of impact on BoC decision, and therefore have more impact on trading.

Looking at the 4H USD/CAD chart, we can say that the pair has set a consolidation range between 1.1560 and 1.1673.

USD/CAD 4H Chart 12/18
usdcad12182014h4
(click to enlarge)

We should first note that the USD gained after the FOMC statement yesterday (12/17), but this did not push USD/CAD into fresh highs on the year. This shows a bit of resilience in CAD. Will the data set help the market keep this CAD-resilience?

Anticipating the Reaction:
The 1.1550-1.1560 area is a key short-term support that includes some support/resistance pivots, the support pivot after the FOMC-reaction, and the 50-period SMA in the 4H chart. If the market does not break below this level, we should maintain a bullish outlook on USD/CAD.

However, if USD/CAD falls below 1.1550, then we have to start considering a possible bearish correction. The first key support in the near-term will be in the 1.15-1.1520 area. Also, if we get a pullback, the 1.16 area should be resistance IF the USD/CAD is indeed in bearish correction. If USD/CAD is able to climb back above 1.16, it is neutral-bullish, with emphasis on the bullish. IF it holds below 1.16, it is Neutral-bearish. But if USD/CAD holds above 1.1550 the whole time, it remains bullish.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.