At 1.30 pm UTC, the US consumer inflation data (US CPI and Core CPI) will hit the markets. The expectation is for both data sets to come in at 0.2%. For the Core CPI, this will be a 0.1% expectation of improvement above last month’s figure. The monthly CPI is expected to remain static.
As is usual with the news releases, traders should work using a deviation of the consensus number from the previous figure and use this to determine whether the news is tradable or not. The deviation for the CPI is 0.0%, while that of the Core CPI is 0.1%.
Trading the USDCAD on the US CPI Data
To trade the news successfully, look out for these below:
- Both data sets should show no conflict; they should move in the same direction.
- The difference between the actual number and the consensus should exceed the deviation between the consensus and previous numbers, producing a tradable signal. The larger this difference is, the higher the potential for more volatility.
Therefore, a US CPI which comes in at 0.3% or higher (along with Core CPI of 0.2% or higher) is deemed to be a USD-positive situation and could lead to a rise in the USDCAD. If the Core CPI comes in at 0.3% or higher and CPI is 0.2%, this is also USD-positive and may produce a better response).
If the US CPI is 0.1% or lower while the CPI is either static or lower, this is a USD-negative situation. If the Core CPI is lower than the CPI and they are both lower than 0.1%, this could produce a more significant response to the downside on the USDCAD.
Conflict in numbers (one rises and the other falls) is a no-trade situation.
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Technical Outlook for USDCAD
If the news gives a tradable deviation, traders need to study the charts for the most outstanding price points to guide their trade choices.
Price continues to trade within the resistance zone defined by the space in between the two descending trendlines, just above the 1.32254 line and the 1.33487 price barriers.
A positive response on the USDCAD to the inflation data needs to send the pair above 1.33487 to target the price level of 1.34328, marked by previous highs of 6 June and 18 June 2019. 1.35231 is also a possible target, being the previous highs seen in April 2019.
On the flip side, downbeat inflation data will allow the daily candle to close below the lower of the two descending trendlines, which completes the downside break and allows price a chance to target 1.32030. This move has to overcome 1.32254 for the target to be actualized. Further support lies at 1.31501. However, not much support for the CAD is coming from crude oil prices, which continue to edge closer to the $55 mark as Russia keeps OPEC waiting. This situation may leave a cap on any possible downside moves on the USDCAD.