Friday, July 22, 2011

Canada Core CPI (Consumer Price Index) Release - 22 July 2011

CPI is also known as Inflation and our focus will be on the Core Inflation figure, also known as CPI excluding Food and Energy, or CPI ex Volatile Items...
Here´s the forecast:

7:00am CA Core CPI m/m 

Forecast 0.0% Previous 0.5%
ACTION: USD/CAD BUY -0.2% / SELL 0.3% 

The Trade Plan

The Core CPI report will be released today and our deviation for this release, based on a historical track record, around 0.2% ~ 0.3%. Therefore, look for tradable figures of -0.2% or worse to BUY USD/CAD, or a 0.4% or better to SELL USD/CAD.

Keep in mind to look for an after-news retracement trade for this release. I´ll wait for the release, then the initial market move, and wait for a decent retracement before jumping in. 
The Market

With the entire market waiting for decision out of the recent EU Summit and the fact that CAD has been strengthening based on favorable economic data and BOC’s stance for withdrawing stimulus, we may see some bullish sentiment for CAD prior to the release. If we get a strong CPI number, traders will speculate BOC hiking rates sooner than later, thus CAD may gain across the board.

However, USDCAD’s exchange rate is highly correlated with USD sentiment, therefore I’d be more inclined to BUY USDCAD on a worse release rather than SELL USDCAD because a strong CAD is not in the best interest of Canada, especially with USD.

Additional Thoughts

USDCAD may stall until the equity market opens; therefore I´d recommend use patience when trading this pair during 7:00am hour. Also Core CPI rarely surprises much, so if we do not get our deviation, just stay out of the market until U.S. market opens.

Pre-news Consideration

There is no pre-news trading for this event.

"CPI, Consumer Price Index, is a statistical estimate of the movement of the prices of goods and services bought for consumption purposes by households. Its computation uses price data collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times and estimates of the shares of the different expenditures in the total covered by the index which are usually based upon expenditure data obtained for sampled periods from a sample of households (Wikipedia)." It is also known as the "True Cost of Living".

Our focus is on the Core CPI or CPI ex Energy and Food components, which provides a better picture of inflation without the seasonal factor.