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Forex Market: USD/CAD daily trading forecast

Yesterday’s trade saw USD/CAD within the range of 1.3113-1.3328. The pair closed at 1.3137, falling 0.79% on a daily basis, or at the steepest rate since August 12th, when it depreciated 1.04%. The daily low has been the lowest level since August 20th, when a low of 1.3056 was recorded.

At 10:02 GMT today USD/CAD was gaining 0.25% for the day to trade at 1.3173. The pair made an attempt to test the upper range breakout level (R4), as it touched a daily high at 1.3234 at 8:20 GMT.

Today the cross may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United States

Manufacturing PMI by the ISM

Activity in United States’ manufacturing sector was probably little changed in August, with the corresponding manufacturing PMI coming in at a reading of 52.6, according to expectations, down from 52.7 in July. If so, this would be the lowest PMI reading since April, when the gauge was reported at 51.5. The New Orders Index came in at 56.5 in July from 56.0 in June. The sub-gauge of production was reported at 56, advancing from 54.0 in the preceding month. The index of employment slid to a value of 52.7 in July from 55.5 in June, indicating that employment levels rose but at a slower rate compared to June. The gauge of inventories of raw materials dropped to 49.5 in July from a reading of 53.0 in the previous month.

The Manufacturing Purchasing Managers’ Index (PMI) is a compound index, which represents manufacturing activity in 18 different industries. It is comprised by four equally-weighted components: seasonally adjusted employment, seasonally adjusted production inventories, seasonally adjusted new orders and supplier deliveries. The index is based on a survey of 300 purchasing managers.

Participants can either respond with “better”, “same”, or “worse” to the questions about the industry, in which they operate. The resulting PMI value is measured from 0 to 100. If the index shows a value of 100.0, this means that 100% of the respondents reported an improvement in conditions. If the index shows a value of 0, this means that 100% or the respondents reported a deterioration in conditions. If 100% of the respondents saw no change in conditions, the index will show a reading of 50.0. Therefore, readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case, however, the PMI slowed down more than anticipated, this would have a strong bearish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.

Canada

Gross Domestic Product

Canadian Gross Domestic Product (GDP) probably shrank 0.9% in Q2 compared to the same quarter a year earlier, according to the median forecast by experts, following a drop by 0.6% in Q1 and 14 consecutive quarters of expansion. If so, it would be the most considerable GDP contraction since Q2 2009, when economy shrank at an annualized rate of 3.5%.

Final domestic demand shrank 0.4% in Q1, after rising 0.4% in the fourth quarter of 2014. Household final consumption expenditure increased 0.1%, or the most modest gain since Q2 2012.

Business gross capital formation shrank 2.5% in Q1, mainly due to a 4.1% drop in non-residential structures and machinery and equipment.

Business entities expanded their inventories to CAD 11.6 billion in Q1 from CAD 8.5 billion in Q4 2014. At the same time, wholesalers expanded their inventories of durable goods by CAD 7.1 billion in the first three months of the year.

Canadas total exports of goods and services slumped 0.3% in Q1, after another 0.4% decrease during the last three months of 2014, while imports of goods and services shrank 0.4% during the period.

The mining, quarrying and oil and gas extraction segments of economy registered a considerable drop in Q1, due to a 30% decline in support activities for mining and oil and gas extraction, according to the report by Statistics Canada.

In case Canadian GDP contracted at a steeper than projected pace during the second quarter, this would have a strong bearish effect on the loonie. The official data is due out at 12:30 GMT.

Bond Yield Spread

The yield on Canadian 2-year government bonds went as high as 0.443% on August 31st, or the highest level since August 13th (0.448%), after which it slid to 0.441% at the close to add 2.5 basis points (0.025 percentage point) on a daily basis. It has been the fifth consecutive trading day of gains.

The yield on US 2-year government bonds climbed as high as 0.743% on August 31st, or the highest level since August 7th (0.749%), after which it fell to 0.739% at the close to add 1.5 basis points (0.015 percentage point) for the day. It has been a fifth straight trading day of gains.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, shrank to 0.298% on August 31st from 0.308% on August 28th. The August 31st yield spread has been the lowest one since August 26th, when the difference was 0.288%.

Meanwhile, the yield on Canadian 10-year government bonds soared as high as 1.492% on August 31st, or the highest level since August 6th (1.512%), after which it closed at the exact same level to add 4.8 basis points (0.048 percentage point) compared to August 28th.

The yield on US 10-year government bonds climbed as high as 2.220% on August 31st, or the highest level since August 19th (2.230%), after which it slipped to 2.214% at the close to add 3 basis points (0.03 percentage point) compared to August 28th.

The spread between 10-year US and 10-year Canadian bond yields narrowed to 0.722% on August 31st from 0.740% on August 28th. The August 31st yield difference has been the lowest one since August 3rd, when the spread was 0.709%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:

R1 – 1.3157
R2 – 1.3176
R3 (range resistance – green on the 1-hour chart) – 1.3196
R4 (range breakout – red on the 1-hour chart) – 1.3255

S1 – 1.3117
S2 – 1.3098
S3 (range support – green on the 1-hour chart) – 1.3078
S4 (range breakout – red on the 1-hour chart) – 1.3019

By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:

Central Pivot Point – 1.3233
R1 – 1.3322
R2 – 1.3443
R3 – 1.3532

S1 – 1.3112
S2 – 1.3023
S3 – 1.2902

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