Forex Market: USD/CAD trading outlook for October 18th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3119-1.3184. The pair closed at 1.3128, inching down 0.08% compared to Fridays close. It has been the 174th drop in the past 361 trading days and also a third consecutive one. The major pair has pared its advance to a mere 0.01% so far during the current month, following a 0.18% gain in September.

At 8:25 GMT today USD/CAD was edging down 0.42% on the day to trade at 1.3073. The pair touched a daily high at 1.3139 during early Asian trade, undershooting the daily R2 level, and a daily low at 1.3062 during the early phase of the European trading session.

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

Fundamentals

United States

Consumer Price Index

The annualized consumer inflation in the United States probably accelerated to 1.5% in September, according to market expectations, from 1.1% in the preceding month. If so, this would be the highest inflation rate since October 2014. In monthly terms, the Consumer Price Index (CPI) probably rose 0.3% in September, according to the market consensus, following a 0.2% increase in the prior month.

In August, cost of food remained flat from a year ago, following a 0.2% increase in July. It has been the lowest food inflation since February 2010. Cost of transportation services rose 3.1% year-on-year in August, accelerating from 3.0% in July, cost of shelter surged 3.4% year-on-year, picking up from 3.3% in July, while cost of medical care soared at an annual 5.1%, accelerating from 4.1% in July, according to the report by the Bureau of Labor Statistics. On the other hand, cost of energy fell 9.2% in August compared to the same month a year earlier, slowing down from a 10.9% drop in July.

The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained stable at 2.3% in September, according to market expectations. In July, the Core CPI rose 2.2% year-on-year.

If the general CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this would usually heighten the appeal of the US dollar, as it increases the probability of monetary policy tightening.

The Bureau of Labor Statistics is to release the official CPI report at 12:30 GMT.

Canada

Manufacturing Sales

Manufacturing sales in Canada probably rose for a third straight month in August, going up at a monthly rate of 0.3%, according to market expectations. In July compared to June shipments were 0.1% higher. The Monthly Survey of Manufacturing features statistical data regarding sales of finished goods, inventories, unfilled orders and new orders in Canada’s sector of manufacturing. About 10 500 items and 27 000 companies are encompassed.

Manufacturing sales are considered as an indicator of demand in the future. An increase in the number of goods and unsold inventories suggests, that demand is insufficient and vice versa. At the same time, an increase in sales (shipments) suggests a stronger demand. Therefore, in case shipments rose at a faster pace than anticipated in August, this might have a limited-to-moderate bullish effect on the Canadian dollar. Statistics Canada will release the official data at 12:30 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.626% on October 17th, or the highest level since June 24th (0.627%), after which it closed at 0.601% to lose 2 basis points (0.02 percentage point) compared to October 14th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.847% on October 17th, after which it fell to 0.823% at the close to lose 2 basis points (0.02 percentage point) compared to October 14th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.222% on October 17th from 0.223% on October 14th. The October 17th 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 – 1.3134
R2 – 1.3140
R3 (Range Resistance – Sell) – 1.3146
R4 (Long Breakout) – 1.3164
R5 (Breakout Target 1) – 1.3185
R6 (Breakout Target 2) – 1.3193

S1 – 1.3122
S2 – 1.3116
S3 (Range Support – Buy) – 1.3110
S4 (Short Breakout) – 1.3092
S5 (Breakout Target 1) – 1.3071
S6 (Breakout Target 2) – 1.3063

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