How to Trade Canadian Retail Sales using USDCAD

[U][B]What is Expected[/B][/U]

Time of release: [B]08:30 EST, 12:30 GMT 7/24/2007[/B]
Primary Pair Impact : [B]USD/CAD
[/B]Expected: [B]0.5%
[/B]Previous: [B] 0.4%[/B]

[B][U]How To Trade This?[/U][/B]
The Canadian retail sales indicator is one of the few, consistent market movers for the Canadian dollar. In the past, a surprise in the consumption number (whether it is big or small) has translated into considerable ground being covered by spot USDCAD. Over the past three releases, the comparison between extremes of the actual print and the number projected by economists is often the driver for the initial 5 to 15 point reaction. However, even when the surprise was modest, the follow through from price action was still substantial. This fact may be particularly useful for this most recent retail report. The May forecast is already calling for a very small change from the previous month?s pace. For further analysis, we have to consider the wholesale/retail sale correlation. Often times when the leading wholesale report marks a substantial surprise, the same underlying current is felt in the retail sector. However, the wholesales indicator hit the wires almost dead inline with expectations - though it was a substantial change from the previous month?s contraction.
Given the setup from economists? expectations, the currently level of USDCAD and the wholesale/retail correlation, a positive reading may need to hit the wires with considerable divergence from the consensus to generate a decent drop. A number in line or only slightly better may be enough for a move to test 1.04. To clear this level and work on new multi-decade lows, the bulls would really need strong data to work with.
Since the Canadian dollar is already so expensive (leaving USDCAD near a multi-decade low), the technical bias favors a negative fundamental surprise. Though the wholesale print gave a strong rebound from the previous month, it didn?t blow away expectations. The retail figure is expected to print at 0.5 percent for May, which is only slightly greater than the 0.4 percent pick up the previous period. A number close to zero - or an actual contraction - could drive USDCAD to 1.05; and depending on the extent of the negative surprise, it could run further. In such a situation, buy two lots of USDCAD with a stop at the nearby swing low. A target for the first lot would be 1.0495 and the second should be discretionary.