Forex Market: USD/CAD trading outlook for August 5th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.2996-1.3091. The pair closed at 1.3019, edging down 0.37% compared to Wednesdays close. It has been the 143rd drop in the past 309 trading days and also a third consecutive one. The daily low has been the lowest level since July 19th, when a low of 1.2940 was registered. The cross has neutralized its earlier advance and is now down 0.07% so far during the current month, following a 0.80% rise in July.

At 8:00 GMT today USD/CAD was inching up 0.01% on the day to trade at 1.3020. The pair touched a daily high at 1.3037 during early Asian trade, overshooting the daily R2 level, and a daily low at 1.3011 during the early phase of the European trading session.

Meanwhile, crude oil futures marked their 74th gain out of the past 164 trading days on August 4th. Oil for September delivery went up as high as $42.08 per barrel, or its highest price level since July 28th, and closed at $41.93, surging 2.69% compared to Wednesday’s close. As of 8:07 GMT today the commodity was edging down 0.55% to trade at $41.70, after going down as low as $41.44 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.

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

Fundamentals

United States

Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings

Employers in all sectors of economy in the United States, excluding the farming industry, probably added 180 000 new jobs in July, according to the median forecast by experts, after a job gain of 287 000 in June. The latter has been the fastest growth rate since October 2015, when a revised up figure of 298 000 was reported. Mays figure has been revised down to just 11 000, as a strike in Verizon caused job losses in information services sector.

Employment in leisure and hospitality rose by 59 000 in June, in health care and social assistance – by 58 000, in information – by 44 000, in professional and business services – by 38 000, and in retail trade – by 30 000. On the other hand, the US mining sector lost 6 000 job positions in June.

Total non-farm payrolls account for 80% of the workers, who produce the entire Gross Domestic Product of the United States. In case of a lower-than-expected gain in jobs in July, demand for the US dollar would be strongly pressured.

Average Hourly Earnings probably increased 0.2% in July compared to the prior month, according to market expectations, following a 0.1% gain to USD 25.61 in June. If expectations were met, July would be the fifth consecutive month of earnings increase.

Meanwhile, the rate of unemployment in the country probably decreased to 4.8% in July, according to market expectations, from 4.9% in June.

The total number of people unemployed rose by 347 000 to 7.8 million in June. Among major groups, the unemployment rates for adult women (4.5%) and Whites (4.4%) went up in June. On the other hand, the rates for adult men (4.5%), teenagers (16.0%), Blacks (8.6%), Asians (3.5%), and Hispanics (5.8%) changed little or not at all.

The number of long-term unemployed (those looking for employment for 27 weeks or more) remained almost unchanged at 1.9 million during June and comprised 25.8% of the unemployed, according to the BLS. At the same time, the number of persons in part-time employment for economic reasons (involuntary part-time workers) went up by 203 000 to 3.8 million in June.

In case the unemployment rate met expectations or even fell further, this would have a bullish effect on the US Dollar, because of the positive implications for consumer spending. The Bureau of Labor Statistics will release the official employment data at 12:30 GMT.

Balance of Trade

The deficit on US balance of trade probably widened to USD 43.10 billion in June, according to market expectations, from a deficit figure of USD 41.14 billion in May. If so, this would be the largest deficit since February, when a revised down gap of USD 46.96 billion was reported.

Total exports fell at a monthly rate of 0.2% in May to reach USD 182.35 billion. Exports of goods dropped USD 0.2 billion to reach USD 119.8 billion during the period, while exports of services shrank USD 0.1 billion to reach USD 62.5 billion.

Total imports, at the same time, rose at a monthly rate of 1.6% to reach USD 223.5 billion in May, after surging 2% in the preceding month. Imports of goods were USD 3.4 billion higher to reach USD 182.1 billion during the period, while imports of services were virtually unchanged at USD 41.4 billion.

In case the trade balance deficit widened more than anticipated in June, this would have a strong bearish effect on the US dollar, because of the negative implications in regard to economic growth. The Bureau of Economic Analysis will release the official trade data at 12:30 GMT.

Canada

Employment Change, Unemployment Rate

The number of the employed people in Canada probably increased by 10 000 in July, according to market expectations, following an unexpected drop by 700 in June.

The number of part-time employed persons rose by 39 400 in June from a month ago, while the number of persons in full-time employment went down by 40 100. During the month employment was lower in construction (-29 000), manufacturing (-13 000) and other services (-9 300). On the other hand, employment increased in accommodation and food services (+20 000) and information, culture and recreation (+14 000).

Meanwhile, the rate of unemployment in the country probably rose to 6.9% in July, according to the median forecast by analysts, after unexpectedly falling to 6.8% in the preceding month. The latter has been the lowest rate of unemployment since July 2015 (6.8%). In June the number of unemployed persons dropped by 20 200 to reach 1 326 300.

A higher-than-expected rate of increase in employment and a stable or even lower unemployment rate would have a strong bullish effect on the local currency, due to positive implications in regard to consumer spending. Statistics Canada is expected to release the official employment report at 12:30 GMT.

Balance of Trade

The deficit on Canadian balance of trade probably narrowed to CAD 2.82 billion in June, according to the median estimate by experts, following a deficit figure of CAD 3.28 billion in the preceding month. If expectations were met, this would be the lowest trade gap since February, when a revised up deficit of CAD 2.47 billion was reported.

In May total exports shrank 0.7% to reach CAD 41.1 billion. During the period, exports of metal and non-metallic mineral products contracted 5.4%, shipments of industrial machinery, equipment and parts went down 4.9%, while those of farm, fishing and intermediate food products shrank 4.2%.

Canadas total imports fell at a monthly rate of 0.8% to reach CAD 44.4 billion in May. During the month, purchases of aircraft and other transportation equipment and parts shrank 23.5%, imports of metal ores and non-metallic minerals went down 24.2%, while those of metal and non-metallic mineral products dropped 3.9%. On the other hand, purchases of energy products went up 18.2% in May, while those of basic and industrial chemical, plastic and rubber products rose 4.8%.

In case the trade balance deficit narrowed more than expected in June, this would have a strong bullish effect on the Canadian dollar. Statistics Canada will release the official trade data at 12:30 GMT.

Ivey PMI

Activity among purchasing managers in Canada probably expanded at a slower rate in July from a month ago, with the corresponding seasonally adjusted Purchasing Managers Index coming in at a value of 50.9, according to the median forecast by analysts.

In June the gauge was reported at 51.7. During the month the index was supported by the gauges of employment (up to 52.5 from 49.3 in the preceding month) and inventories (up to 55.1 from 49.6 in May). On the other hand, the gauge for supplier deliveries slipped into the area of contraction in June (down to 47.3 from 53.3 in May), while the gauge of prices rose at a slower rate (down to 59.7 from 63.1 in May).

Readings above the key level of 50.0 are indicative of improvement in business conditions, while those below it suggest predominant pessimism (lower activity). In case the PMI matched or came below market expectations, this would have a moderate-to-strong bearish effect on the Canadian dollar. The official index reading is due out at 14:00 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.564% on August 4th, after which it closed at 0.538% to lose 2 basis points (0.02 percentage point) compared to August 3rd.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.679% on August 4th, after which it fell to 0.647% at the close to lose 2.4 basis points (0.024 percentage point) compared to August 3rd.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.109% on August 4th from 0.113% on August 3rd. The August 4th yield spread has been the lowest one since July 6th, when the difference was 0.096%.

Daily, Weekly and Monthly Pivot Levels

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

R1 – 1.3028
R2 – 1.3036
R3 (Range Resistance – Sell) – 1.3045
R4 (Long Breakout) – 1.3071
R5 (Breakout Target 1) – 1.3102
R6 (Breakout Target 2) – 1.3114

S1 – 1.3010
S2 – 1.3002
S3 (Range Support – Buy) – 1.2993
S4 (Short Breakout) – 1.2967
S5 (Breakout Target 1) – 1.2936
S6 (Breakout Target 2) – 1.2924

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

Central Pivot Point – 1.3095
R1 – 1.3187
R2 – 1.3347
R3 – 1.3439
R4 – 1.3532

S1 – 1.2935
S2 – 1.2843
S3 – 1.2683
S4 – 1.2524

In monthly terms, for USD/CAD we have the following pivots:

Central Pivot Point – 1.3038
R1 – 1.3244
R2 – 1.3460
R3 – 1.3666
R4 – 1.3872

S1 – 1.2822
S2 – 1.2616
S3 – 1.2400
S4 – 1.2184