Forex Signal (Fri March 18 2011, 7:00am NY Time EST) - CA Core CPI m/m...

Henry Liu

Former FPA Special Consultant
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:
CA Core CPI m/m Forecast 0.5% Previous 0.0%

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 around 0.3%, therefore I’ll be looking for tradable figures of 0.2% or worse to BUY USD/CAD or a 0.8% or better to SELL USD/CAD.

I’ll be looking for an 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 methods.

The Market
USDCAD has been trending upwards this week with strength in the U.S. Dollar due to what is taking place in Japan creating a risk aversion sentiment in the market. But with recent economic data mostly pointing to the upside out of Canada, a strong inflation reading could prompt further speculation that BOC will hike rates sooner than later.

However, if we do not get the deviation we are looking for, with most traders keeping eyes on Japan, we may not see much movement in the USDCAD we would normally see.

Additional Thoughts
With worsening global growth prospects, oil prices pulling back from their highs, and central banks everywhere likely to keep borrowing costs on hold. BOC may not be looking to tighten interest rates soon, even if a surprisingly strongly inflationary signal from CPI were to be released, therefore we are unlikely to see CAD appreciate very much due to the current market sentiment.

USDCAD may stall until equity market open; therefore I’d recommend using some 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.

Historical Chart & Data For CA Core CPI m/m


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