Forex Market: USD/CAD trading outlook for August 9th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3136-1.3191. The pair closed at 1.3154, edging down 0.13% compared to Thursdays close. It has been the 144th drop in the past 311 trading days. The major pair has trimmed its advance to 0.97% so far during the current month, following a 0.80% gain in July.

At 8:05 GMT today USD/CAD was edging up 0.14% on the day to trade at 1.3172. The pair touched a daily high at 1.3191 during late Asian trade, overshooting the upper range breakout level (R4), and a daily low at 1.3143 during the early phase of the Asian trading session.

Meanwhile, crude oil futures marked their 75th gain out of the past 166 trading days on August 8th. Oil for September delivery went up as high as $43.39 per barrel and closed at $43.02, going up 2.92% compared to Friday’s close. As of 8:37 GMT today the commodity was retreating 0.51% to trade at $42.80, after going down as low as $42.50 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.

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

Fundamentals

United States

Wholesale Inventories

The value of goods inventories, held at US wholesalers, probably rose at a monthly rate of 0.1% in June, according to market expectations. If so, it would match the rate in May and would also be the fourth consecutive month of expansion. In case inventories grew at a faster rate than projected in June, this would have a limited-to-moderate bearish effect on the US Dollar. The Census Bureau is to release the official report at 14:00 GMT.

Canada

Housing Starts

The number of housing starts in Canada probably dropped to the seasonally adjusted annual level of 195 000 in July from 218 300 in June. The latter has been the highest figure since September 2015, when 233 262 starts were reported. Urban housing starts increased 18.1% to 202 702 units, with the multiple segment surging 26.7% to 142 819 units and the single-detached segment rising 1.7% to 59 883 units. Increases in urban housing starts were reported in British Columbia, Ontario and the Prairies, while decreases were observed in Atlantic Canada and Quebec. At the same time, housing starts in rural areas were reported at 15 631 units.

Housing starts are considered as a key indicator, reflecting the strength of the nation’s housing sector. In case the number of housing starts decreased more than anticipated in July, this would have a moderate bearish effect on the Canadian dollar. The official report by the Canadian Mortgage and Housing Corporation is due out at 12:15 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.531% on August 8th, after which it closed at 0.510% to lose 1 basis point (0.01 percentage point) compared to August 5th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.746% on August 8th, or the highest level since July 29th (0.750%), after which it fell to 0.726% at the close to remain unchanged compared to August 5th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.216% on August 8th from 0.206% on August 5th. The August 8th yield spread has been the largest one since June 14th, when the difference was 0.229%.

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 – 1.3159
R2 – 1.3164
R3 (Range Resistance – Sell) – 1.3169
R4 (Long Breakout) – 1.3184
R5 (Breakout Target 1) – 1.3202
R6 (Breakout Target 2) – 1.3209

S1 – 1.3149
S2 – 1.3144
S3 (Range Support – Buy) – 1.3139
S4 (Short Breakout) – 1.3124
S5 (Breakout Target 1) – 1.3106
S6 (Breakout Target 2) – 1.3099

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

Central Pivot Point – 1.3123
R1 – 1.3250
R2 – 1.3329
R3 – 1.3456
R4 – 1.3583

S1 – 1.3044
S2 – 1.2917
S3 – 1.2838
S4 – 1.2759

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