Forex Analysis (Fri October 22 2010, 7:00am NY Time EDT) - CA Core CPI m/m

Henry Liu

Former FPA Special Consultant
CPI or Consumer Price Index is the direct measurement of inflation, and it is a high impact release that has long term effects on CAD. It is undoubtedly a high impact release that will be the focus of early NY trading session today. Here is the forecast:

CA Core CPI m/m Forecast 0.3% Previous 0.1%

The Trade Plan

We will be focusing on the Core CPI release today and our deviation for this release based on historical track record is 0.3%, therefore I’ll be looking for tradable figures of 0.5% or better to SELL USD/CAD or a 0.0% or worse to BUY USD/CAD.

I'll be looking for a after-news retracement trade for this release. I'll wait for the release, wait for the initial market move, and wait for a decent retracement before jumping in. For more information on my trading methods:
Henry's News Trading Method.

The Market
USDCAD strengthened to parity just recently, but after BOC decided to keep current bank interest rate unchanged, CAD pared off most of its recent gains and dropped against USD to the 1.0350 level just a few days ago.

With BOC taking a cautious stance and considering the general sentiment to the USD, traders aren't really expecting this Core CPI release to put any more pressure on BOC to hike interest rates, therefore we may not see strong momentum or follow-through in the event of a slightly better/worse than expected release.

Additional Thoughts
Today's Core CPI release is expected at a modest 0.3%, which is the median estimate of 14 economists surveyed by Bloomberg. Core CPI has been on a steady trend therefore I'd probably stay out of the market unless we get our tradable deviation.

USD/CAD is a very slow moving currency with very little retracement. We may need to jump in a little sooner, but market should spike in the direction of the news, stall, and then spike again. Usually the second spike will give us the most pips.

Pre-news Consideration
There is no pre-news trading for this event, especially with Retail Sales coming out in 90 minutes.

“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.

Historical Chart & Data of CA Core CPI


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Hello Henry. Once again many thanx for the pips and all the help/advice you freely give- much appreciated.
Sorry for not posting for a while but have been in hospital and had a vacation.
Bye for now,
kind regards,