[B][U]Trading the News: Canadian Wholesale Sales[/U][/B]
[B][/B]
[B][U]What’s Expected[/U][/B]
Time of release: [B]04/18/2008 00:30 GMT, 21:30 EST[/B]
Primary Pair Impact[B] : USDCAD[/B]
Expected: 0.4%
Previous: 2.6%
[B]How To Trade This Event Risk [/B]
Canadian fundamental data will have the stage to itself, with no U.S. releases scheduled for Friday, which should provide trade worthy event risk. Wholesale sales and leading indicators will battle for traders attention when they are released simultaneously. The “Loonie’ has been riding a wave of bullish sentiment on the back of oil prices setting another record over $115 per barrel. The price appreciation in energy has increased the attractiveness of several Canadian companies, driving the S&P TSX to a five month high. The recent strength of the equities market has economists expecting a rebound in the leading indicators from last month’s nine year low of -0.3%. Conversely, wholesale sales are expecting to fall from the 13 month high it set in January. Nevertheless, fundamentals have remained strong for the com bloc country, which has seen exports, employment and housing remain strong. However, the tightening credit markets and U.S. slowdown has led to a dovish BoC and expectations of a 50 point rate cut. The recent easing of inflation for a fourth month and well below the 2% target, has cleared the way for the MPC to be aggressive at its April 22 meeting. USD/CAD has found support on the news, after “Loonie” bulls drove it below parity for the first time in nearly a month.
A better than expected wholesale sales read, and a supporting rebound in the leading indicators may cast doubt on the need for further rate reductions from the central bank. On paper the economy looks great with strong fundamentals and an attractive stock market. The sole albatross is the softening U.S. economy. A consecutive month of better than expect wholesale sales may ease those concerns, especially if we see a another rebound in timberland sales. The industry, whose 11.2% decline in December pulled down the aggregate measure to a 1 ½ year low, is a measuring stick for the state of the U.S. housing market. Therefore, we would look for another gain of 1% or greater with support from the broad economic leading indicator gauge. With the right mix of data, we will look for a five minute red bar and rising volatility to short two lots of USDCAD. The nearby swing high (or reasonable distance) will act as our initial stop and this risk will equal our first target. The second target will be set on discretion - with a mind to nearby support. To conserve profit we will move the stop on the second lot to break even when the first takes its target.
A drop in wholesales sales may bring out the Loonie bears, as expectations will rise for further easing from the MPC . We will look for a similar surprise from both readings to the downside for a short and we will follow the same setup as above, just reversed.
