Forex Market: USD/CAD daily trading forecast

Yesterday’s trade saw USD/CAD within the range of 1.2404-1.2497. The daily low has also been the lowest level since February 18th, when a low of 1.2376 was recorded. The pair closed at 1.2433, going down 0.51% on a daily basis and extending losses from Tuesday.

At 9:22 GMT today USD/CAD was down 0.17% for the day to trade at 1.2415. The pair touched a daily low at 1.2405 at 8:20 GMT.

Fundamentals

United States

Consumer Inflation

The annualized consumer inflation in the United States probably continued to decelerate in January, falling to -0.1%, according to market expectations, from 0.8%, registered in December. If so, this would be the lowest rate since October 2009, when an inflation of -0.2% was reported. In monthly terms, the Consumer Price Index (CPI) probably dropped for a third straight month in January, down 0.6%. If so, this would be the largest monthly decrease since December 2009, when consumer prices fell 0.8%. In December compared to November 2014 the CPI slumped 0.4%.

In December energy prices plunged 10.6% year-on-year. Food prices, on the other hand, rose at an annualized rate of 3.4% during the same month, which marked the most considerable annual gain since February 2012, according to the report by the Bureau of Labor Statistics.

The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.

The CPI includes sales taxes, but excludes income taxes, costs of investments such as stocks and bonds and sales prices of homes.

The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained steady at 1.6% in January. This has been the lowest annual core inflation since February 2014. It is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependance on the time of the year. The Core CPI is a key measure, because this is the gauge, which the Federal Reserve Bank takes into account in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile and the central bank’s tools are slow-acting. In case, for example, prices of gas surge considerably, this could lead to a high rate of inflation, but the central bank will not take action until this increase affects prices of other goods and services.

If the CPI tends to distance from the inflation objective, set by the Federal Reserve and considered as providing price stability, or 2%, this will usually reduce the appeal of the US dollar. However, quite high rates of inflation (well above the central bank’s inflation target) can be harmful to economy and as a result, this may lead to the loss of confidence in the local currency.

The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.

Durable Goods Orders

Durable goods orders in the United States probably increased 1.9% in January compared to a month ago, according to the median forecast by experts. If so, this would be the first gain in three months. In December orders for manufactured durable goods dropped at a pace of 3.4%. New orders decreased by USD 8.1 billion to USD 230.5 billion in December, down in four of the last five months.

Shipments of manufactured durable goods increased by USD 2.6 billion (1.1%) to USD 246.8 billion in December, following a 0.7% drop in November. Inventories of manufactured durable goods in December, up in twenty of the last twenty one months, rose by USD 2.0 billion (0.5%) to reach USD 410.8 billion. Non-defense new orders for capital goods in December fell USD 7.9 billion (9.7%) to USD 73.3 billion, according to data by the US Census Bureau.

Durable goods orders, as an indicator, gauge the strength of US manufacturing sector and represent a major portion of the nations factory orders. This is a closely watched report on manufacturing activity, because durable goods are the first type of goods to be affected by an economic downturn or upturn.

Durable goods are designed to last three or more years and encompass aircraft, automobiles and buses, cranes, machine parts, appliances etc. More than 85 industries are represented in the sample, which covers the entire United States. The logic behind this indicator is that consumers need to be very optimistic in order to buy an automobile in comparison with, for example, first necessities such as food or clothing. Therefore, durable goods are among the first goods, which a consumer may abstain from purchasing, in case overall economic activity begins to contract. The same is valid for company purchases. During a recession, an airliner is less likely to purchase new planes and as factory output contracts, it is less likely to purchase new machines.

Durable goods orders, which exclude transportation, probably rose 0.5% in January. If so, this would be the first gain in the past four months. In December orders were down 0.8%. Large ticket orders, such as automobiles for civil use or aircraft, are not present in the calculation, as their value may be in a wide range. This way the index provides a more reliable information in regard to orders for durable goods.

In case orders increased at a faster-than-projected pace, this would certainly have a bullish effect on the greenback. The US Census Bureau is scheduled to release the official data at 13:30 GMT.

Canada

Consumer Inflation

The annualized consumer inflation in Canada probably decelerated to 0.7% in January, according to market expectations, from 1.5% in the prior month. If so, this would be the lowest annual rate of inflation since October 2013, when it was reported at 0.7%. Decembers rate was influenced by a 16.6% fall in prices of gasoline.

Transportation costs decreased 2.8% during the 12 months to December. This decline was almost entirely attributable to lower gasoline prices. Consumers in the country paid more for shelter (a 2.4% gain year-on-year) and electricity (a 4.3% increase). Prices of natural gas rose at an annualized rate of 16.5% in December, while food prices were up 3.7%, according to the report by the Statistics Canada.

In monthly terms, the Consumer Price Index (CPI) probably fell for a third straight month in January, down 0.4%, according to expectations. In December the index posted a 0.7% fall, or the most considerable monthly drop since December 2008.

Key categories in Canadian CPI basket are Shelter (accounting for 27.5% of the total weight) and Transportation (19.3%). Other categories include Food (with a 16.1% share), Household Operations, Furnishings and Equipment (11.8%), Recreation, Education and Reading (11.8%), Clothing and Footwear (5.7%), Health and Personal Care (5%), while Alcoholic Beverages and Tobacco Products comprise the remaining 3%.

Bank of Canadas (BoC) annualized Core CPI, which excludes prices of fruits, vegetables, gasoline, fuel oil, natural gas, mortgages, intercity transportation, and tobacco products, probably slowed down to 2.1% in January from 2.2% in December. This is the key measure of inflation, on which the central bank bases its decisions regarding monetary policy. In case the Core CPI decelerated more than projected, this would have a bearish effect on the Canadian dollar. The official CPI report by the Statistics Canada is due out at 13:30 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.2445. In case USD/CAD manages to breach the first resistance level at 1.2485, it will probably continue up to test 1.2538. In case the second key resistance is broken, the pair will probably attempt to advance to 1.2578.

If USD/CAD manages to breach the first key support at 1.2392, it will probably continue to slide and test 1.2352. With this second key support broken, the movement to the downside will probably continue to 1.2299.

The mid-Pivot levels for today are as follows: M1 – 1.2326, M2 – 1.2372, M3 – 1.2419, M4 – 1.2465, M5 – 1.2512, M6 – 1.2558.

In weekly terms, the central pivot point is at 1.2484. The three key resistance levels are as follows: R1 – 1.2610, R2 – 1.2691, R3 – 1.2817. The three key support levels are: S1 – 1.2403, S2 – 1.2277, S3 – 1.2196.