The Canadian economy has continued to remain resilient in the face of the headwinds from the U.S. slowdown. The country’s economy is deriving strength from the current commodities boom. Canada remains one of the few have nations with an abundance of natural resources that are in larger demand, which led to the trade balance surplus widening for the third month in March to C$5.5 from C$4.5 the month prior. Companies have continued to hire to meet the increasing demand leading to another 19,200 jobs added in April after a gain of 14,600 the month before. Unfortunately for the region, its main trading partner the United States is in a economic slowdown. The expectations that the effects of the U.S. troubles will filter through to the Canadian economy led to the BoC cutting rates by 50 bps at its last meeting, in order to soften the landing of the economy. The worries have weighed on consumer confidence, which has led to retail sales falling 0.7% in February after a 1.5% gain the month prior. Wholesale sales are expected to rebound 0.3% in March from a decline of 1.8%, which may signal that the robust labor market is supporting domestic consumption. Crossing the wires at the same time will be the U.S. producer Price Index which will provide additional event risk. However, with prices expected to ease and the general consensus that the Fed will pause at their next meeting, a close to inline reading may have little impact. Although, a upside surprise in the core reading, which is expected to increase from 2.7% to 2.9%, may provide dollar support.

Oil prices rising above $126 a barrel have provided significant loonie support, pushing the pair below 0.9950 for the first time since March 19. The current loonie bullish momentum should continue with a rebound in wholesale sales. Therefore, we would look for a better than expected reading of at least 0.4% or better with a inline U.S. P.P.I. print for a long trade. 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 disappointing print may provide the most potential price volatility considering the pair is approaching the significant technical support level at 0.9870 of 38.2% Fibo 0.9056-1.0376. A consecutive decline in wholesale sales will dampen the outlook for domestic growth and with the increasing expectations that the commodity boom may be ending, may push the pair back above parity. We will look for a similar surprise to the downside for a short and we will follow the same setup as above, just reversed.

Jamie Saettele is a Technical Currency Analyst for FXCM.