Forex Market: USD/CAD trading outlook for October 17th 2016

Friday’s trade (in GMT terms) saw USD/CAD within the range of 1.3103-1.3221. The pair closed at 1.3139, edging down 0.40% compared to Thursdays close. It has been the 173rd drop in the past 360 trading days and also a second consecutive one. The daily low has been a level not seen since October 3rd, when a low of 1.3068 was registered. In weekly terms, USD/CAD lost 1.20% of its value during the past week. It has been the 26th drop in the past 41 weeks and also the sharpest one since the week ended on August 14th. The major pair has pared its advance to 0.08% so far during the current month, following a 0.18% gain in September.

At 8:09 GMT today USD/CAD was edging up 0.33% on the day to trade at 1.3182. The pair touched a daily high at 1.3184 during early European trade and a daily low at 1.3127 during the early phase of the Asian trading session.

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

Fundamentals

United States

NY Empire State Manufacturing Index

The New York Empire State Manufacturing Index probably rebounded in October, going up to a reading of 1.00, according to the median forecast by experts. In September the gauge came in at -1.99, which marked a second straight period of negative readings.

In September, inventories shrank at a faster rate, while delivery times have shortened. The gauges of new orders and shipments fell markedly, while labor market conditions weakened, as both employment levels and the average workweek were reported as lower. Price indexes stayed near their August levels, which signaled ongoing moderate input price increases and a continued selling price growth. Respondents in the survey expected overall conditions to improve during the upcoming six months.

Index readings above 0.00 are indicative of improving business conditions in the region. Higher-than-anticipated index values will usually have a moderate bullish effect on the US dollar. The Federal Reserve Bank of New York is expected to release the official reading at 12:30 GMT.

Industrial Production

Industrial output in the United States probably rebounded in September, going up at a monthly rate of 0.2%, according to market expectations. In August, the index of production registered a 0.4% monthly slump.

In August, output in the US mining sector rose for a fourth straight month, up 1.0%, as a drop in coal mining was outweighed by surges in oil and gas extraction, oil well drilling and servicing, and metal ore and non-metallic mineral mining.

The gauge for utilities registered a 1.4% monthly drop in August. However, the gauge still remained 1.7% above its August 2015 level, as demand for air conditioning was bolstered due to hot summer.

Manufacturing production, which accounts for almost three quarters of total industrial production, shrank 0.4% in August from a month ago, as production of durables (-0.6%), non-durables (-0.2%) and other manufacturing areas (publishing and logging) (-0.7%) all dropped.

A larger-than-projected monthly increase in the index would usually have a moderate bullish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the official production data at 13:15 GMT.

Correlation with other Majors

Taking into account the business week ended on October 14th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

USD/CAD to USD/CHF (0.3348, or moderate)
USD/CAD to EUR/USD (-0.0150, or very weak)
USD/CAD to USD/JPY (-0.0805, or very weak)
USD/CAD to GBP/USD (-0.4425, or moderate)
USD/CAD to NZD/USD (-0.6787, or strong)
USD/CAD to AUD/USD (-0.8819, or very strong)

1. During the examined period USD/CAD moved strongly in the opposite direction compared to NZD/USD.

2. USD/CAD moved almost equally in the opposite direction compared to AUD/USD during the past week.

3. USD/CAD moved almost independently compared to EUR/USD and USD/JPY during the period in question. The correlation between USD/CAD and EUR/USD was almost non-existent.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.621% on October 14th, or the highest level since July 21st (0.622%), after which it closed at 0.620% to add 2.4 basis points (0.024 percentage point) compared to October 13th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.863% on October 14th, or matching the high from a day ago, after which it fell to 0.843% at the close to add 0.004 percentage point compared to October 13th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.223% on October 14th from 0.243% on October 13th. The October 14th yield spread has been the lowest one since September 22nd, when the difference was 0.203%.

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 – 1.3150
R2 – 1.3161
R3 (Range Resistance – Sell) – 1.3171
R4 (Long Breakout) – 1.3204
R5 (Breakout Target 1) – 1.3242
R6 (Breakout Target 2) – 1.3257

S1 – 1.3128
S2 – 1.3117
S3 (Range Support – Buy) – 1.3107
S4 (Short Breakout) – 1.3074
S5 (Breakout Target 1) – 1.3036
S6 (Breakout Target 2) – 1.3021

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

Central Pivot Point – 1.3183
R1 – 1.3264
R2 – 1.3388
R3 – 1.3469
R4 – 1.3549

S1 – 1.3059
S2 – 1.2978
S3 – 1.2854
S4 – 1.2729

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

Central Pivot Point – 1.3077
R1 – 1.3332
R2 – 1.3535
R3 – 1.3790
R4 – 1.4044

S1 – 1.2874
S2 – 1.2619
S3 – 1.2416
S4 – 1.2212