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Analyzing the Upcoming Canadian Retail Sales Data and Its Impact on CAD on 23-Jan-25

Canada’s Retail Sales and Core Retail Sales m/m reports on January 23, 2025, will be pivotal for traders gauging the strength of the Canadian Dollar (CAD). Combining fundamental analysis and technical trends, this article provides a detailed outlook on the data, historical trends, and potential market implications.

Fundamental Analysis

Retail Sales Expectations

  • Forecasted Data:
    • Core Retail Sales m/m: +0.1%
    • Retail Sales m/m: +0.2%
    • Previous Data: Core Retail Sales: -0.3%, Retail Sales: +0.1%

Factors Influencing Retail Sales

  1. Positive Drivers:

    • Employment Strength: Canada added 90,900 jobs in December 2024, well above expectations, signaling a resilient labor market. Higher employment levels often correlate with increased consumer spending.
    • Holiday Spending: December retail activity may reflect higher spending due to the holiday season, potentially boosting the January report.

  2. Negative Pressures:

    • Oil Price Volatility: Crude oil prices, a key export for Canada, recently declined by 1.4%, potentially lowering export revenues and impacting consumer spending indirectly.
    • Geopolitical Risks: The potential for U.S. tariffs on Canadian goods could introduce economic uncertainty, deterring robust consumer expenditure.
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Technical Analysis

The USD/CAD pair remains a critical benchmark for assessing the CAD’s performance.

1. Chart Patterns and Key Levels

  • Trend Overview:

    • The pair has been trading in an ascending channel since early Q4 2024.
    • It is approaching major resistance at 1.4465, with support at 1.4385 and a deeper floor at 1.4295.

  • Breakout Scenarios:

    • A break above 1.4465 could open the door to test the next resistance at 1.4515, confirming bullish sentiment for USD/CAD.
    • A move below 1.4385 would indicate CAD strength, targeting a retracement toward 1.4295 or lower.

2. Moving Averages

  • The 50-day SMA at 1.4143 and the 200-day SMA at 1.3802 suggest sustained bullish momentum for USD/CAD.
  • A close below the 50-day SMA would signal potential reversal, favoring CAD appreciation.

3. RSI and Momentum Indicators

  • The RSI is hovering near 70, indicating overbought conditions.
  • Overbought levels could trigger profit-taking on USD positions, leading to short-term CAD strength.

4. Volume and Market Sentiment

  • Volume analysis indicates higher participation near resistance levels, signaling heightened interest in potential breakout or rejection scenarios.
  • Sentiment leans neutral-to-bullish for USD/CAD, contingent on upcoming retail sales data.

Predictions

Scenario 1: Strong Retail Sales (Actual > Forecast)

  • If Core Retail Sales exceed +0.2% and headline sales surpass expectations, the CAD is likely to strengthen.
  • Impact on USD/CAD:
    • A break below 1.4385 would confirm a bearish move for the pair.
    • Targets: 1.4295, then potentially 1.4200 if momentum accelerates.

Scenario 2: Weak Retail Sales (Actual < Forecast)

  • Weak retail performance would likely weaken the CAD, as it signals reduced consumer activity.
  • Impact on USD/CAD:
    • A breakout above 1.4465 could push the pair toward 1.4515 or higher.
    • RSI overbought conditions may limit further upside in the short term.

Scenario 3: Inline Retail Sales (Actual Matches Forecast)

  • Limited immediate reaction is expected, but broader trends (e.g., oil prices, trade tensions) could dominate.
  • Impact on USD/CAD: Consolidation between 1.4385 and 1.4465 with potential for breakout upon subsequent data or events.
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Trading Strategy Recommendations

Before Data Release

  • Consider establishing straddle positions near 1.4385 and 1.4465 to capitalize on potential volatility.
  • Monitor oil price movements and pre-market sentiment.

After Data Release

  • Bullish CAD Strategy: If data beats expectations, look for a short entry in USD/CAD near resistance, targeting a move to 1.4295.
  • Bearish CAD Strategy: If data disappoints, long positions in USD/CAD above 1.4465 with a target at 1.4515 and a stop-loss near 1.4400.

Conclusion

The January 23, 2025, Retail Sales report will play a critical role in shaping the CAD’s near-term trajectory. While strong fundamentals like job growth provide optimism, external pressures such as falling oil prices and geopolitical risks add caution. Combining these insights with technical analysis reveals critical opportunities for forex traders, making this event a high-priority focus.

Stay vigilant and trade strategically!