Canadian Dollar Sets Up to Offer Range Trade Against Euro

A bare Canadian calendar this week has left traders with little excuse to commit to a definitive direction for EURCAD. Last week’s German PPI came in stronger than expected, suggesting this week’s CPI numbers are likely to follow suit. We will look to this momentum to drive the pair higher towards our entry to enter short with the overall trend’s bias.

[B]Trading Tip – Current inflationary trends have been dominating headlines. As such, German CPI numbers will be a closely watched and may signal substantial short-term volatility in the EUR. Conservative traders may want to consider placing their orders after the CPI release. In addition to a stop loss, we will look to control risk further by removing any unfilled orders by the end of the week of should spot close above 105.00 prior to our order being filled.[/B]

[B]Event Risk for Europe and Canada[/B]

[B]Europe[/B] – Traders will be sitting on edge as German CPI numbers come in on Wednesday. Surprising German PPI figures last week will inherently play into the CPI release as producers generally pass their costs onto consumers. An alarming CPI figure will put pressure onto the ECB as the bank is positioned in a nutshell, juggling the prospect of stagnating growth with substantial inflationary risk. April’s Italian Retail Sales is likely to have little impact on the EURCAD given its backward-looking nature. By contrast, Thursday’s by-industry break-down of Germany’s IFO Business Climate Survey will be watched as the overall index came in worse than expected. Export sector optimism may signal a reversal as Euro strength over the past years have made European goods comparatively expensive and depressed growth. The final revision of French Q1 GDP will only move the market should we see changes from the preliminary release drastic enough for traders to rethink their EUR positions. Finally, April’s Euro Zone Current Account will likely be overlooked as the movements in the single currency since then have substantially altered the calculus for both exporters and importers.

[B]Canada[/B] – The Canadian docket is virtually bare this week, with the meager release of May’s Industrial Product Price left to be revealed. Only a wild downward spike would stir the markets as it would call into question the BoC’s recent hawkish shift.

[I]To contact Ilya and Luis with comments regarding this or other articles they have authored, please email them at <[email protected]>.[/I]