A big shift in fundamentals, evolving technicals and unusual market conditions are a few key considerations for making a fundamental trade on the Canadian retail sales report. As for the indicator itself, expectations are for a second monthly decline that would double September’s report with a 0.4 percent print. This consensus seems to find some support from the wholesale sales indicator after the gauge marked modest declines in food and auto related spending.
Trading the News: Canadian Retail Sales
What’s Expected
Time of release: 12/21/2007 13:30 GMT, 08:30 EST
Primary Pair Impact : USDCAD
Expected: -0.4%
Previous: -0.2%
How To Trade This Event Risk
A big shift in fundamentals, evolving technicals and unusual market conditions are a few key considerations for making a fundamental trade on the Canadian retail sales report. As for the indicator itself, expectations are for a second monthly decline that would double September’s report with a 0.4 percent print. This consensus seems to find some support from the wholesale sales indicator after the gauge marked modest declines in food and auto related spending. However, the wholesale/retail correlation is likely to hold little water for Friday’s release as the relationship has been absent for the past three months and a 0.5 percent increase in business to business sales is modest anyways. On the other hand, a sharp rise or fall in consumer spending could have a significant impact on the fundamental framework of Canadian positioning. Just week’s ago, the Bank of Canada lowered its benchmark lending rate for the first time in a year in response to financial turmoil and tepid inflation. And, while their economic outlook remained quite upbeat, clear concerns over trade, business spending and consumer sentiment have developed. What’s more, the reaction to this event risk will also be warped and guided by technicals. USDCAD has just recently confirmed its first serious correction since the pair began its rally from its November 7th spike low. More importantly, the entire currency market will be under the influence of holiday trading. As many traders have already squared their books early, a fundamental surprise will likely have to be that much larger to generate a profitable trade. Finally, the monthly GDP number scheduled for release at the same time could conflict or amplify a reaction to the retail data.
Technically, a strong Canadian sales report could find a strong USDCAD response as the pair has just recently tested parity and broken below a rising trendline for its first retracement in a relatively steady six-week advance. With regards to the GDP release, we would prefer to see it fall in line with expectations and not interfere with sales or print a stronger than expected number to contribute to loonie strength. Regardless of these other conditions, we must see a considerable upside surprise from our primary indicator to encourage us to take a trade in this quiet market environment. We will look for an upside surprise of 1.0 percentage point (a 0.6 percent reading) or more. With the right fundamental bias in place, we will look for a five-minute, red bar to confirm short entry on two lots of USDCAD. Our initial stop will be set at the nearby swing high (or reasonable distance) and our first profit target will equal this risk. The second objective will be based on discretion; but to preserve profit, we will move the stop on the second lot when the first half of the trade hits its target.
For a long trade, we would will take the same precautions as mentioned above. Of primary importance is a downside surprise of the same magnitude described for the long scenario. We will use the same trading strategy for a long as we laid out for a short, just in reverse.
Interested in this specific event risk or the USDCAD in General? Discuss both in the USDCAD thread of the DailyFX Forum.
