Trading Guide: Canada's February Retail Sales

Tomorrow, at 12:30 pm GMT Canada will release its retail sales figures for the month of February. The headline figure is expected to clock in a 0.3% rise while the core version, which excludes volatile automobile sales in its computation, is anticipated to rise by 0.5%.

The forecast is slightly worse than the previous month's results. If you recall, core retail sales increased 0.5% in January and the headline version jumped 1.0%.

Although Canadian data have been less than stellar lately, keep in mind that we'll see the retail sales figures for the month of February, and not March. There was a lot of good news for that month, and this could be reflected in the retail sales report.

For instance, the jobs data for February was pretty impressive. It showed that the number of workers who found jobs rose by a whopping 50,700, which was a lot better than the 7,800 figure analysts had initially expected. Meanwhile, the jobless rate remained at 7.0% even as more workers joined the labor force. Consumer prices also came in double than expected at 1.2% due to the unforeseen surge in transportation prices.

Looking ahead, however, things do not look too good. In the Bank of Canda's (BOC) most recent statement, it warned the market that consumers could start scaling back on their spending due to the threat of higher inflation.

In any case, traders will be watching this report closely as it could give clues on whether or not the Canadian economy merely suffered a one-month slip in economic reports or if what we're seeing these days is already the start of a gloomy trend.

So how will USD/CAD react to a good or a bad retail sales reading? Let's take a look at the past two releases for clues.

February 22, 2013

In February both the headline and core retail sales missed expectations. As a result, USD/CAD had shot up by almost 60 pips in the next two hours after the report was printed. It encountered resistance at the 1.0250 psychological level though, and erased at least half of its move before the day ended.

March 27, 2013:

March's release was a bit more interesting. USD/CAD had already started falling since the start of the London session in anticipation of a positive release. It encountered support at the 1.0200 major psychological handle before the positive data was released and a buy-the-rumor-sell-the-news scenario popped up the pair back to its Asian session levels.

From what we have gathered above we can say that the Loonie's price action has a direct correlation to the release. That is, a good retail sales number is good for the Canadian dollar while a miss would most likely boost USD/CAD.

It's also a good idea to take note of major and minor psychological handle, as the pair usually bounces off them before and after the release. Last but not the least, we can say that it's a good idea to take profits early as the pair has a tendency to recover most of its initial reaction before the end of the day.

Still, you should take the tips above with a grain of salt. Remember that good odds don't necessarily translate to actual results, especially in the forex markets. Supplement these information with your own research and make sure that you prepare for all scenarios that you can think of.