Trading Guide: Canadian Retail Sales Report

Tomorrow, Statistics Canada will release its retail sales report for August at 12:30 p.m. GMT. The data is pretty important since it’s the primary gauge for consumer spending which accounts for a majority of the country’s economic activity.

Looking back at the latest releases, the headline retail sales figure has disappointed forecasts 5 out of the 6 most recent months, while the core retail sales figure has fallen short of expectations 6 out of the 7 past months.

Analysts are predicting that tomorrow’s release will show that consumer spending picked up in August after both core and headline figures came in at -0.4% in July. The consensus for the headline reading is 0.4%. On the other hand, the core figure – which excludes volatile items – is seen at 0.3%.

Why should you pay attention to the report, you ask?

Well, for one, I think that it could be a market-mover because its outcome may affect the Bank of Canada‘s outlook. Out of all the G7 central banks, the BOC has the brightest outlook on it’s economy. In fact, earlier this month, Canadian central bankers even talked about the possibility of hiking interest rates. The report may give them one more reason to remain hawkish or shift their stance to sound more dovish depending on its outcome.

On top of that, there are no other reports that will be released during the New York session which means that the spotlight may very likely be on the Canadian retail sales!

Lastly, statistics reveal that the report has been a market-mover in the past. USD/CAD moves at least 50 pips during the New York session and tends to find interest at the day open price.

Let’s examine the past two releases to give us an idea of how price would react to the data for August:

August 22, 2012

USD/CAD August 22, 2012

Thanks to worse-than-expected results, USD/CAD shot up immediately after the release, rising about 20 pips. However, anti-CAD sentiment didn’t last long, as the pair soon dropped over 30 pips and finished near the Tokyo highs.

July 24, 2012

USD/CAD July 24, 2012

During this release, we got a better-than-expected outcome, as core sales rose by 0.5%, higher than the 0.1% expectation. USD/CAD initially traded lower, although the move wasn’t pronounced and had no follow-through. The pair found tough support at the week open, and soon shot up to break through the 1.0200 handle.

Tips and Tricks

Strategy 1 – Trade the news

If the report comes in way off target, it could provide an excellent opportunity to make some pips. One option would be to take a bearish directional bias on the CAD, knowing that the past few releases have mostly come in worse than expected. You can set buy limit orders above current price, and hold for the first 15-minute candle.

Strategy 2 – Play the Fade

As you’ve noticed from the past two releases, USD/CAD has shot off in one direction after the release of the report, but soon faded in the other direction. You can try fading the tomorrow’s move, using strong psychological levels and support and resistance levels as entry points, while aiming for 30 to 40 pips for your take profit points.

Strategy 3 – Scalp off the day open or major psychological levels.

During the trading day itself, it seems that the day open price and round, psychological levels (e.g. .9700, .9750, .9800, .9850) attract a lot of interest. For all you scalpers, these could be good levels to place your bets on.

Don’t get too excited though. Make sure that you have a plan on how to trade the report. You should know when to pull the trigger, where to take profit and put your stop, and how long you should hold on to your trade.

Don’t risk too much, either! Statistics on past price action only reveal the pair’s tendencies but anything can still happen.

If you’re uncomfortable trading the news, don’t force it. Remember that not having any position is still a position.

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