Wednesday, 22 April 2009 10:57:15 GMT
Written by David Song, Currency Analyst
Full Article
Retail spending in Canada is expected to fall 0.3% in February as households face a weakening labor market paired with tightening credit conditions, and economic activity within the region is likely to deteriorate further as the Bank of Canada forecasts the economy to contract 3.0% this year.
Trading the News: Canadian Retail Sales
What’s Expected
Time of release: 04/23/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: USDCAD
Expected: -0.3%
Previous: 1.9%
Effect the Canadian Retail Sales had on USDCAD for the past 2 months
January 2009 Canada Retail Sales
Private-sector spending in Canada rose for the first time in four-months, and marked the biggest increase since July 2006 as retail sales jumped 1.9% in January. The breakdown of the report showed that auto-related purchases increased 3.8% from the previous month, while discretionary spending on clothing and accessories rose 3.0% however, households are likely to cut back on consumption throughout the year as the region faces its first recession in over a decade. As a result, the Bank of Canada took further steps to stimulate the ailing economy and lowered the benchmark interest rate to a record-low of 0.50% earlier this month, and the extraordinary efforts should help to stem the downside risks for growth and inflation but nevertheless, as the downturn in the global economy intensifies, growth prospects are likely to deteriorate further as trade conditions falter.
December 2008 Canada Retail Sales
Retail sales in Canada plunged 5.4% in December to mark its biggest decline since January 1991, and conditions are likely to get worse as the world’s eighth largest economy heads into a deepening recession. The breakdown of the report showed that gasoline receipts slipped another 11.7% after falling 15.1% in the previous month, while demands for building supplies fell 5.6% during the month, and was followed by a 3.7% drop in clothing sales. The data continues to reinforce a dour outlook for growth as households face a weakening labor market paired increased turmoil in the banking sector, and as a result, the Bank of Canada is widely expected to lower the benchmark interest rate by 50bp to a record low of 0.50% in an effort to jump-start the economy and may adopt unconventional policy tools to counter the recession as borrowing costs fall close to zero.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCAD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCAD ahead of the data release.
How To Trade This Event Risk
Retail spending in Canada is expected to fall 0.3% in February as households face a weakening labor market paired with tightening credit conditions, and economic activity within the region is likely to deteriorate further as the Bank of Canada forecasts the economy to contract 3.0% this year. A report by Statistics Canada showed that the world’s eighth largest economy lost another 61.3K jobs in March, which pushed the unemployment rate to a seven-year high of 8.0%, while the Ivey PMI showed that business spending fell for the fifth consecutive month in March, and as a result, the labor market is expected to weaken further as businesses continue to cut back on production and employment in an effort to reduce costs. Moreover, wholesale sales unexpectedly fell 0.6% in February to C$41B, which is the lowest level since November 2006, while demands for new motor vehicles slipped 2.2% during the same period, and as the leading economic indicator foreshadows a deepening downturn in the region, the outlook for growth and inflation remains bleak. Meanwhile, after unexpectedly lowering the overnight lending rate by another 25bp to a record-low of 0.25% earlier this week, the Bank of Canada established a floor for the benchmark interest rate by saying that ‘conditional on the outlook for inflation, the target overnight rate can be expected to remain at its currency level until the end of the second quarter of 2010’ as policymakers expected price growth to fall below the 2% target until the third quarter of 2011, and went onto say that the central bank has ‘considerable flexibility’ to shore up the economy as credit conditions remain far from normal. The comments suggests that the BoC may adopt additional policies, which includes quantitative and credit easing procedures, as growth and inflation falter, and pledged to take the ‘appropriate policy stance to move the economy back to full production capacity and achieve the 2 percent inflation target,’ while Governor Mark Carney noted that these policies are not in any way ‘preordained.’ As the central bank continues to hold a dour outlook for the region, deteriorating fundamentals paired with falling home prices may continue to weigh on household sentiment however, as policymakers take unprecedented steps to stimulate the ailing, the extraordinary efforts should help to stem the downside risks for growth and inflation. Nevertheless, as the downturn in the global economy intensifies, the drop in market sentiment paired with a weakening outlook for private consumption may weigh on the exchange rate over the next 24 hours of trading however, an unexpected rise in retail sales could fuel demands for the Canadian dollar as growth prospects improve.
Trading the given event risk favors a bearish outlook for the Canadian dollar as economists expect household spending to falter however, an unexpectedly increases in retail sales would reinforce an improved outlook for growth, and would set the stage for a short dollar-loonie trade. Therefore, if retail spending rises 0.1% or more in February, we will look for a red, five-minute candle following the release to confirm a short entry on two-lots of USD/CAD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be base on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, fading demands for employment paired with fears of a deepening downturn is likely to weigh on households, and a drop in private consumption would lead us to short the Canadian dollar as the outlook for growth and inflation falter. As a result, an in-line print or a drop of more than 0.3% in retail sales would lead us to short the loonie, and we will follow the same strategy for a long USDCAD position as the short trade mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
Retail spending in Canada is expected to fall 0.3% in February as households face a weakening labor market paired with tightening credit conditions, and economic activity within the region is likely to deteriorate further as the Bank of Canada forecasts the economy to contract 3.0% this year.
Trading the News: Canadian Retail Sales
What’s Expected
Time of release: 04/23/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: USDCAD
Expected: -0.3%
Previous: 1.9%
Effect the Canadian Retail Sales had on USDCAD for the past 2 months
January 2009 Canada Retail Sales
Private-sector spending in Canada rose for the first time in four-months, and marked the biggest increase since July 2006 as retail sales jumped 1.9% in January. The breakdown of the report showed that auto-related purchases increased 3.8% from the previous month, while discretionary spending on clothing and accessories rose 3.0% however, households are likely to cut back on consumption throughout the year as the region faces its first recession in over a decade. As a result, the Bank of Canada took further steps to stimulate the ailing economy and lowered the benchmark interest rate to a record-low of 0.50% earlier this month, and the extraordinary efforts should help to stem the downside risks for growth and inflation but nevertheless, as the downturn in the global economy intensifies, growth prospects are likely to deteriorate further as trade conditions falter.
December 2008 Canada Retail Sales
Retail sales in Canada plunged 5.4% in December to mark its biggest decline since January 1991, and conditions are likely to get worse as the world’s eighth largest economy heads into a deepening recession. The breakdown of the report showed that gasoline receipts slipped another 11.7% after falling 15.1% in the previous month, while demands for building supplies fell 5.6% during the month, and was followed by a 3.7% drop in clothing sales. The data continues to reinforce a dour outlook for growth as households face a weakening labor market paired increased turmoil in the banking sector, and as a result, the Bank of Canada is widely expected to lower the benchmark interest rate by 50bp to a record low of 0.50% in an effort to jump-start the economy and may adopt unconventional policy tools to counter the recession as borrowing costs fall close to zero.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCAD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCAD ahead of the data release.
How To Trade This Event Risk
Retail spending in Canada is expected to fall 0.3% in February as households face a weakening labor market paired with tightening credit conditions, and economic activity within the region is likely to deteriorate further as the Bank of Canada forecasts the economy to contract 3.0% this year. A report by Statistics Canada showed that the world’s eighth largest economy lost another 61.3K jobs in March, which pushed the unemployment rate to a seven-year high of 8.0%, while the Ivey PMI showed that business spending fell for the fifth consecutive month in March, and as a result, the labor market is expected to weaken further as businesses continue to cut back on production and employment in an effort to reduce costs. Moreover, wholesale sales unexpectedly fell 0.6% in February to C$41B, which is the lowest level since November 2006, while demands for new motor vehicles slipped 2.2% during the same period, and as the leading economic indicator foreshadows a deepening downturn in the region, the outlook for growth and inflation remains bleak. Meanwhile, after unexpectedly lowering the overnight lending rate by another 25bp to a record-low of 0.25% earlier this week, the Bank of Canada established a floor for the benchmark interest rate by saying that ‘conditional on the outlook for inflation, the target overnight rate can be expected to remain at its currency level until the end of the second quarter of 2010’ as policymakers expected price growth to fall below the 2% target until the third quarter of 2011, and went onto say that the central bank has ‘considerable flexibility’ to shore up the economy as credit conditions remain far from normal. The comments suggests that the BoC may adopt additional policies, which includes quantitative and credit easing procedures, as growth and inflation falter, and pledged to take the ‘appropriate policy stance to move the economy back to full production capacity and achieve the 2 percent inflation target,’ while Governor Mark Carney noted that these policies are not in any way ‘preordained.’ As the central bank continues to hold a dour outlook for the region, deteriorating fundamentals paired with falling home prices may continue to weigh on household sentiment however, as policymakers take unprecedented steps to stimulate the ailing, the extraordinary efforts should help to stem the downside risks for growth and inflation. Nevertheless, as the downturn in the global economy intensifies, the drop in market sentiment paired with a weakening outlook for private consumption may weigh on the exchange rate over the next 24 hours of trading however, an unexpected rise in retail sales could fuel demands for the Canadian dollar as growth prospects improve.
Trading the given event risk favors a bearish outlook for the Canadian dollar as economists expect household spending to falter however, an unexpectedly increases in retail sales would reinforce an improved outlook for growth, and would set the stage for a short dollar-loonie trade. Therefore, if retail spending rises 0.1% or more in February, we will look for a red, five-minute candle following the release to confirm a short entry on two-lots of USD/CAD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be base on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, fading demands for employment paired with fears of a deepening downturn is likely to weigh on households, and a drop in private consumption would lead us to short the Canadian dollar as the outlook for growth and inflation falter. As a result, an in-line print or a drop of more than 0.3% in retail sales would lead us to short the loonie, and we will follow the same strategy for a long USDCAD position as the short trade mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.