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Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.3893-1.4021. The pair closed at 1.3987, rising 0.25% on a daily basis, while extending the gain from January 4th. The daily high has been the highest level since August 28th 2003, when a high of 1.4086 was registered.

At 10:26 GMT today USD/CAD was gaining 0.73% for the day to trade at 1.4095. The pair touched a daily high at 1.4103 at 10:27 GMT, or a level unseen since August 22nd 2003, and a daily low at 1.3974 during the early hours of Asian trading session. Resistance may be encountered at the round 1.4150 level and then – at the high from August 22nd 2003 (1.4166). Support may be received at the hourly 21-period EMA (1.4020) and then – at the psychological 1.4000 level.

On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

United States

Change in employment by ADP

Employers in the US non-farm private sector probably added 192 000 new jobs during December, according to the median estimate by experts, following 217 000 new positions added in November. The latter has been the largest gain in jobs since June 2015, when 237 000 positions were added. The employment report by Automated Data Processing Inc. (ADP) is based on data that encompasses 400 000 – 500 000 companies employing over 24 million people, working in the 19 major sectors of the economy. The ADP employment change indicator is calculated in accordance with the same methodology, which the Bureau of Labor Statistics (BLS) uses. Published two days ahead of the government’s official employment statistics, this report is used by traders and market analysts as a reliable predictor of the official non-farm payrolls data. Creation of jobs has a direct link to consumer spending, while the latter is a major driving force behind growth in a consumption-based economy. Therefore, in case new jobs growth came above expectations, this would have a moderate-to-strong bullish effect on the US dollar. The official figure is scheduled to be released at 13:15 GMT.

Balance of Trade

The deficit on US balance of trade probably widened to USD 44.0 billion in November, according to market expectations. In October the trade gap was reported at USD 43.89 billion, expanding from a month ago as exports tumbled to lows unseen in three years due to strong US dollar.

Total exports dropped at a monthly rate of 1.4% in October to reach USD 184.1 billion, or the lowest figure since October 2012. Exports of goods reached lows unseen since June 2011. Food exports fell to their lowest level since March 2012, while exports of industrial supplies and materials – to their lowest level in five years.

Total imports, at the same time, shrank at a monthly rate of 0.6% to reach USD 228.0 billion in October. Imports of industrial supplies and materials dropped to lows unseen since May 2009, while imports of petroleum marked their lowest level since November 2003.

In case a larger-than-projected deficit figure is reported in November, this would cause a strong bearish impact on the US dollar, because of the negative implications for growth. The Bureau of Economic Analysis will release the official trade data at 13:30 GMT.

Non-Manufacturing PMI by the ISM

Activity in United States’ sector of services probably remained little changed in December, with the corresponding non-manufacturing PMI coming in at a reading of 56.0, according to the median forecast by experts, up from 55.9 in November. The latter has been the lowest PMI reading since May 2015, when a level of 55.7 was reported. If expectations were met, December would be the 72nd consecutive month, when the gauge stood in the area above 50.0. The PMI is a compound index, based on the values of four equally-weighted components, which comprise it. These sub-indexes reflect seasonally adjusted new orders, seasonally adjusted employment, seasonally adjusted business activity and supplier deliveries.

The New Orders Index stood at 57.5 in November, falling from a reading of 62.0 in the prior month. The Employment Index dropped to 55.0 in November from 59.2 in October, while marking growth for the 21st month in a row, according to data by the Institute for Supply Management (ISM). The Prices Index rose to 50.3 in November from 49.1 in October, which indicated prices rose for the first time in the past three months. The Non-Manufacturing Business Activity Index slumped to 58.2 in November from 63.0 in October, indicating growth for a 76th straight month.

Among the 18 services industries, 12 reported growth and 6 reported contraction in November.

In case the general non-Manufacturing PMI rose more than projected in December, this would have a strong bullish effect on the US dollar. The ISM is to release the official index reading at 15:00 GMT.

FOMC Minutes

At 19:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on December 15th-16th. The minutes offer detailed insights on FOMC’s monetary policy stance. This release is closely examined by analysts and market participants, as it may offer clues over interest rate decisions in the future. High volatility of currency pairs containing the US dollar is usually present after the publication.

The Federal Reserve raised the target for the federal funds rate by 0.25% to 0.50% in December, as widely anticipated, stressing on the significant improvement in labor market conditions in the country. Fed policy makers were reasonably confident that annualized rate of inflation will climb back to the 2% inflation objective over a medium term. However, the federal funds rate is likely to stay below its long-run levels for some time, the most recent FOMC Statement revealed. It implied that the benchmark rate will probably follow a path of gradual increases in the upcoming months.

Canada

Balance of Trade

The deficit on Canadian balance of trade probably shrank to CAD 2.60 billion in November, according to the median estimate by experts, following a deficit figure of CAD 2.76 billion in the preceding month. The latter has been the most considerable trade gap since May 2015, when a deficit of CAD 3.34 billion was reported.

In October total exports went down 1.8% to reach CAD 43.0 billion. Exports of farm, fishing and intermediate food products shrank at a monthly rate of 7.3% to CAD 2.5 billion, while exports of metal ores and non-metallic minerals dropped 9.4% to CAD 1.5 billion. Additionally, exports of metal and non-metallic mineral products were 2.2% lower in October to reach CAD 4.6 billion.

Canada’s total imports shrank 0.8% to reach CAD 45.7 billion in October. Imports of consumer goods went down at monthly rate of 3.3% to CAD 9.9 billion, while imports of electronic and electrical equipment and parts were 3.1% lower to reach CAD 5.3 billion. Additionally, imports of crude oil and crude bitumen decreased 9.2% to CAD 1.0 billion in October to mark their lowest value since September 2003. On the other hand, imports of metal and non-metallic mineral products rose 3.6% to reach CAD 3.7 billion in October.

In case the Canadian trade balance gap narrowed more than projected in November, this would have a strong bullish effect on the loonie. Statistics Canada will release the official trade data at 13:30 GMT.

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 – 1.3967
R1 – 1.4041
R2 – 1.4095
R3 – 1.4169

S1 – 1.3913
S2 – 1.3839
S3 – 1.3785

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

Central Pivot Point – 1.3865
R1 – 1.3917
R2 – 1.3994
R3 – 1.4046

S1 – 1.3788
S2 – 1.3736
S3 – 1.3659

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