Forex Plan and Video on CA CPI m/m 07/23/10

CPI or Consumer Price Index is direct measurement of inflation, which is a high impact release that could have long term effect on CAD, it is undoubtedly a high impact release that will be the focus of early NY trading session. Here is the forecast:

CA Core CPI m/m Forecast 0.1% Previous 0.3%
ACTION: USD/CAD BUY -0.2% SELL 0.4%

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 0.4% or better to SELL USD/CAD or a -0.2% or worse to BUY USD/CAD.

USD/CAD has been strengthening on the back of BOC rate decision, which was the second 25 basis points hike in a row. Even though BOC downgraded GDP forecast from 3.7% down to 3.5% for 2010, market still reacted with strong demand for the Canadian Dollar.

Looking at today’s disappointing Retail Sales from Canada, we saw very limited initial sell-off that was completely reversed in less than 90 minutes. Demand for CAD, AUD, and NZD remained high as risk appetite sentiment drove the broader market today. It is likely we’ll see similar market reaction if we get a worse than expected release, as the long-term fundamental of the Canadian Dollar is still one of the best (if not the best) among all majors.

Additionally, in today’s BOC Monetary Report, Bank of Canada is calling for a gradual rate increase pending on the pace of recovery and inflation. Even though this does not guarantee a surefire rate hike, it’s possible that expectation for the next rate meeting will be affected by this release, therefore a stronger release should definitely add to the demand (at least temporarily) of CAD.

Important Observation: There is a very small window for this trade to work as market should be driven by the release alone from 7:00am to about 8:15am. If we do not get a decent retracement in the first 30 minutes of the release, its probably best to stay out of the market and take an early weekend.

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.

DEFINITION:
“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.

Here’s one of my previous recorded live videos on CAD CPI m/m release: (Note: even though there was no trade taken in this video, I recommend you watch this because of the invaluable lessons included in this video on fundamental & technical factors in News trading)

[flv:http://www.newsprofiteer.com/081909-cadcpi/081909-cadcpi.mp4 480 360]