Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.3774-1.3987. The pair closed at 1.3930, surging 1.08% on a daily basis and extending the gain from Wednesday. The daily high has been the highest level since May 18th 2004, when a high of 1.4004 was registered. The loonie has depreciated 4.15% against the greenback so far during the current month, following another 2.17% slump in November.

At 9:29 GMT today USD/CAD was losing 0.16% for the day to trade at 1.3916. The pair touched a daily low at 1.3907 at 9:10 GMT and a daily high at 1.3962 during mid-Asian session. Support may be received at the psychological 1.3900 level and after that at the hourly 55-period EMA (1.3856), while resistance may be encountered at the high from December 17th (1.3987).

The Canadian dollar has recently been heavily influenced by a continuous decline in oil prices. Crude oil futures for January delivery were up 0.46% on the day to trade at $34.96 per barrel as of 9:25 GMT, after falling to as low as $34.71 earlier. Oil has declined in 10 out of the past 14 trading days. On Monday the commodity touched a daily low of $34.53 a barrel, which has been the lowest price level since February 18th 2009, when oil futures plunged as low as $34.13 per barrel. Crude oil has expanded losses to 16.16% of its value so far in December from a 15.45% drop a day ago.

On Friday USD/CAD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United States

Services PMI by Markit – preliminary reading

Activity in the US sector of services probably remained unchanged in December, with the corresponding preliminary Purchasing Managers Index remaining at a reading of 56.1, according to expectations. It has been the highest index reading since August 2015, when a final value of 56.1 was reported as well. The PMI is based on data collected from a representative panel of more than 400 private sector companies, which encompasses industries such as transport and communication, financial intermediaries, business and personal services, computing & IT and hotels & restaurants. Values above the key level of 50.0 indicate optimism (expanding activity). In case a larger-than-expected expansion in services sector activity is reported, this would have a moderate bullish effect on the US dollar. The preliminary data by Markit Economics is due out at 14:45 GMT.

Canada

Consumer inflation

The annualized consumer inflation in Canada probably accelerated to 1.5% in November, according to market expectations. If so, it would be the highest annual inflation since December 2014. In October annual consumer prices were reported to have risen 1.0%, while matching the rate in September.

In October prices rose in seven out of eight major categories. Prices of food rose 4.1% year-on-year, after a 3.5% surge in the previous month. Cost of recreation, education and reading went up 1.9% in October, slowing down from a 2.5% surge in September. Consumers also paid more for shelter in October (a 1.1% year-on-year increase, or the same rate as in September). On the other hand, downward pressure on the Consumer Price Index came from cost of transportation, as the latter decreased 3.2% during the period, following a 3.5% slump in September, according to the report by the Statistics Canada.

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 advanced 2.3% in November, accelerating from a 2.1% surge in the prior month. If expectations were met, this would be the highest annual core inflation since July 2015, when a rate of 2.4% was reported. This is the key measure of inflation, on which the central bank bases its decisions regarding monetary policy. In case both the general CPI and the core CPI accelerated more than projected in November, this would have a strong bullish impact on the Canadian dollar. The official CPI report by the Statistics Canada is due out at 13:30 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.559% on December 17th, after which it closed at 0.521% to lose 3.1 basis points (0.031 percentage point) compared to December 16th. It has been the 10th drop in the past 19 trading days.

The yield on US 2-year government bonds climbed as high as 1.017% on December 17th, after which it closed at 0.997% to lose 1.2 basis points (0.012 percentage point) compared to December 16th. It has been the 7th drop in the past 24 trading days.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.476% on December 17th from 0.457% on December 16th. The December 17th yield spread has been the largest one in more than 11 months.

Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.511% on December 17th, after which it slid to 1.430% at the close to lose 8.1 basis points (0.081 percentage point) compared to December 16th. It has been the 12th drop in the past 19 trading days.

The yield on US 10-year government bonds climbed as high as 2.285% on December 17th, after which it slipped to 2.230% at the close to lose 6.8 basis points (0.068 percentage point) compared to December 16th. It has been the 15th drop in the past 24 trading days.

The spread between 10-year US and 10-year Canadian bond yields widened to 0.800% on December 17th from 0.787% on December 16th. The December 17th yield difference has been the largest one since August 19th, when the spread was 0.809%.

Daily and Weekly Pivot Levels

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

Central Pivot Point – 1.3897
R1 – 1.4020
R2 – 1.4110
R3 – 1.4233

S1 – 1.3807
S2 – 1.3684
S3 – 1.3594

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

Central Pivot Point – 1.3626
R1 – 1.3889
R2 – 1.4023
R3 – 1.4286

S1 – 1.3492
S2 – 1.3229
S3 – 1.3095