By Darrell Martin
Statistics Canada and Bank Of Canada will release various Consumer Price Index (CPI) reports Friday, August 18, 2017, at 8:30 AM, ET. The CPI measures the change in the price of goods and services from the consumer’s perspective. The Core CPI report excludes food and energy because of the volatility of those items. The CPI reports are an essential indicator of changes in inflation and purchasing trends.
There are four reports being released with varying degrees of importance and forecasts. One, with high importance, is forecast to stay the same at 0.1 percent. Two, one with medium and one with low importance, are forecast to increase, from -0.1 percent to 0.1 percent and 1.0 percent to 1.2 percent, respectively. The last report is rated with medium importance and only lists the previous information of 0.9 percent, without any forecast.
While a rise in CPI may lead to a rise in both interest rates and local currency (CAD), during a recession, this same rise in CPI may lead to a deepened recession and a fall in local currency. Should a higher than expected reading be released, regard it as positive or bullish for the CAD. If it is lower, it should be taken as negative or bearish for the CAD.
This is a tradeable news report. An Iron Condor strategy using Nadex USD/CAD spreads offers a high probability trade. This strategy includes two spreads. One spread is bought trading the bottom range of the market. Another spread is sold trading the range directly above the bought spread. The ceiling of the bought spread should meet the floor of the sold spread and be where the market is trading at the time.
Each spread should have a profit potential of at least $15 for a combined profit potential of $30 or more for the trade. If the level of implied volatility in the market is high, then more profit potential will be available in the spreads. If the level is low, then there may be very little profit potential, in which case there is no trade.
Enter this Iron Condor trade as early as 8:00 AM ET for 10:00 AM ET expiring spreads. Risk is capped at the floor and the ceiling of the spreads but risk can be managed further with stops. For this trade with a $30 profit potential, if the market takes off and moves 60 pips above or below from where it was at entry, it will reach the 1:1 risk reward ratio points. This is where to place stops. As long as the market settles somewhere within the 60 pip range of 30 pips above and below from where it started, the trade will profit. With time expired and the market settled between the two spreads, max profit is realized.