Out of Canada today, we got CPI inflation for November and Retail Sales data for October. CAN CPI m/m (Nov.): -0.4%; Forecast: -0.2%; Previous: 0.1%Core CPI m/m (Nov.): -0.2%; Forecast: 0.1%; Previous: 0.3% (click to enlarge; source: StatCan) In November, CPI fell -0.4% compared to October. On an annual basis, the inflation rate in November was 2.0%, down from the 2.4% reading in October, as shown in the chart above. The main drag on inflation in the second half of 2014 has been the steep decline in oil prices. Even though the 2.0% annual inflation rate is in-line with BoC's target, the trend suggests that the prints will fall below 2.0% in the coming months. CAN Retail Sales (Oct.): 0.0%; Forecast: -0.4%; Previous: 0.8%Core Retail Sales (Oct.): 0.2%; Forecast: 0.2%; Previous: 0.0% (click to enlarge; source: StatCan) Retail sales data for October was not as disappointing as expected, but was still relatively flat. The inflation data should have the stronger impact here, especially since it is a more timely release for November, instead of October (for retail sales). The disappointing inflation report should weaken the USD/CAD. Let's take a look at the chart for the market's reaction: (USD/CAD 4H Chart 12/19; click to enlarge) The 4H chart shows that after the retreat from 1.1672, USD/CAD was holding above 1.1550. It was back to 1.16 before the Canadian data. After the data, the immediate reaction was a CAD-sell-off. This did not appear to sustain as the USD/CAD remained around 1.16. Remember earlier in the week, USD/CAD rallied after the FOMC gave USD strength across the board. But this reaction failed to push USD/CAD into new highs, which reflected some CAD resilience at these levels. Today, poor inflation data does not seem to be helping USD/CAD push towards the 1.1672 high. If price can hold above 1.16, there might still be upside risk. But if it closes below 1.16 this week, USD/CAD will reflect CAD-strength, and the 1.1550 support area will be threatened, while USD/CAD is at the crossroad. USD/CAD will have to break below 1.1550 to shelve the bullish outlook. Below 1.1550 USD/CAD might start a period of consolidation in the short-term or bearish correction (for at most a week or so), with the 1.15 and 1.14 levels in sight.