Forex Market: USD/CAD trading outlook for September 27th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3136-1.3245. The pair closed at 1.3227, rising 0.44% compared to Fridays close. It has been the 181st gain in the past 346 trading days and also a second consecutive one. The daily high has been a level unseen since September 16th, when a high of 1.3249 was registered. The major pair has increased its advance to 0.93% so far during the current month, following a 0.59% gain in August.

At 8:15 GMT today USD/CAD was edging down 0.15% on the day to trade at 1.3207. The pair touched a daily high at 1.3277 during early Asian trade, undershooting the upper range breakout level (R4), and a daily low at 1.3164 during the early phase of the European trading session.

Meanwhile, crude oil futures marked their 96th gain out of the past 200 trading days on September 26th. Oil for November delivery went up as high as $46.20 per barrel and closed at $45.93, soaring 3.26% compared to Friday’s close. As of 8:10 GMT today the commodity was losing 0.70% to trade at $45.61, after going down as low as $45.48 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 and other events as listed below.

Fundamentals

United States

S&P Case-Shiller Home Price Index

At 13:00 GMT Standard & Poor’s/Case-Schiller will report on the performance of their House Price Index, which measures the change in values of single-family homes in 20 metropolitan areas across the United States. The report serves as a gauge of the US housing market’s health. According to the median estimate by experts, home prices in the 20 areas probably rose 5.1% in July compared to July 2015, while matching the rate in June. It has been the lowest annual increase since August 2015. In June, home values in Portland recorded the highest annual increase (up 12.36%), followed by Seattle (up 11%) and Denver (up 9.2%). Within a recovering economy, a slower-than-projected gain in prices will usually have a limited-to-moderate bearish effect on the local currency.

Services PMI by Markit – preliminary reading

Activity in the US sector of services probably increased at a faster rate in September from a month ago, with the corresponding preliminary Purchasing Managers’ Index coming in at a reading of 51.2, according to the median forecast by experts, from a final 51.0 in August. The latter has been the lowest PMI level since February, when a final 49.7 was reported. According to Markit, in August, new business growth was subdued, while employment in the sector grew at the slowest rate since December 2014.

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 predominant optimism (expansion in general activity). In case a faster than-expected expansion in services sector activity is reported, this would have a moderate bullish effect on the US dollar, as services contribute to a considerable portion of the US GDP. The preliminary reading by Markit Economics is due out at 13:45 GMT.

Consumer Confidence Index by the CB

Confidence among consumers in the United States probably eased in September, with the corresponding index coming in at a reading of 99.0, according to market expectations. In August the gauge was reported at 101.1, while confounding the median estimate pointing to a slowdown to 97.0. It has been the highest level of confidence since September 2015, when the gauge came in at a revised down 102.6 (103.0 previously).

This indicator measures the level of individuals’ confidence in the US economic development. It is considered as a leading indicator, as it gives an early insight into consumer spending, which accounts for a major part of the nation’s GDP.

In case the index slowed down more than anticipated, this would have a strong bearish effect on the US dollar, as lower confidence suggests a lesser willingness to spend and, respectively, a slower economic growth. The Conference Board research group is to publish the official index reading at 14:00 GMT.

Fed’s Fischer statement

At 15:15 GMT Fed’s vice chairman, Stanley Fischer, is expected to speak on the topic “Why Study Economics?” in front of the Howard University Economic Convocation. Any hints in regard to the Bank’s policy stance or US economic outlook would certainly heighten USD volatility.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.525% on September 26th, after which it closed at 0.500% to lose 2.5 basis points (0.025 percentage point) compared to September 23rd.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.758% on September 26th, after which it fell to 0.750% at the close to lose 0.008 percentage point compared to September 23rd.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.250% on September 26th from 0.233% on September 23rd. The September 26th yield spread has been the largest one since June 9th, when the difference was 0.251%.

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 – 1.3237
R2 – 1.3247
R3 (Range Resistance – Sell) – 1.3257
R4 (Long Breakout) – 1.3287
R5 (Breakout Target 1) – 1.3322
R6 (Breakout Target 2) – 1.3337

S1 – 1.3217
S2 – 1.3207
S3 (Range Support – Buy) – 1.3197
S4 (Short Breakout) – 1.3167
S5 (Breakout Target 1) – 1.3132
S6 (Breakout Target 2) – 1.3117

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

Central Pivot Point – 1.3138
R1 – 1.3275
R2 – 1.3382
R3 – 1.3519
R4 – 1.3657

S1 – 1.3031
S2 – 1.2894
S3 – 1.2787
S4 – 1.2681

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

Central Pivot Point – 1.3024
R1 – 1.3283
R2 – 1.3462
R3 – 1.3721
R4 – 1.3981

S1 – 1.2845
S2 – 1.2586
S3 – 1.2407
S4 – 1.2229