Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.2006-1.1920. The pair closed 0.23% higher at 1.1985, following a 0.49% loss the previous day.

At 07:02 GMT today USD/CAD was up 0.02% for the day to trade at 1.1989. The cross held in a daily range of 1.1980 – 1.2006 and has lost 0.7% for the week so far.

Fundamental view

United States

The New York Empire State Manufacturing Index probably rebounded to a reading of 5.00 in May, according to the median forecast by experts, after falling to -1.19 in April, the lowest since December, defying projections for a reading of 7.00.

The index is based on the monthly Empire State Manufacturing Survey, which is conducted by the Federal Reserve Bank of New York. About 200 top manufacturing executives respond to a questionnaire, sent out during the first day of the month. They provide their estimates in regard to the performance of several business indicators from the prior month, while also forecasting performance during the upcoming six months.

The general business conditions component and the sub-indexes for the 11 indicators are calculated by subtracting the percentage of respondents who rate an indicator as ”lower” (a drop) from the percentage of respondents, rating the same indicator as ”higher” (an increase). In case 33% of survey respondents stated that business conditions had improved during the current month, 50% stated that conditions had not changed, and 17% of the respondents stated that conditions had deteriorated, the index would amount to 16. Readings above 0.00 are indicative of improving business conditions in the region. Lower-than-anticipated index values will usually have a negative effect on the US dollar. The Federal Reserve Bank of New York is expected to release the official reading at 12:30 GMT.

Meanwhile, industrial output in the US probably expanded 0.1% in April from a month earlier, following an unrevised 0.6% contraction in March, the worst performance since November 2012.

The index of industrial production reflects the change in overall inflation-adjusted value of output in the sectors of manufacturing, mining and utilities. It is sensitive to consumer demand and interest rates. As such, industrial production is an important tool for future GDP and economic performance forecasts. Those figures are also used to measure inflation by central banks as very high levels of industrial output may lead to uncontrolled levels of consumption and rapid inflation. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. A larger-than-projected increase in the index would usually boosts demand for the US dollar.

In addition, Capacity Utilization Rate in the country was probably flat at 78.4% last month. This indicator represents the percentage of production capacity being utilized in the industrial sector and reflects overall growth and demand in the country. Its reading is used for comparison with the optimal rate for a stable production process, or the highest possible level of production in an enterprise, in case it operates within a realistic work schedule and has sufficient raw materials and inventories at its disposal. High rates of capacity utilization usually lead to inflationary pressures. In general, higher-than-anticipated rates tend to be dollar positive. The Federal Reserve is to release the industrial production data at 13:15 GMT.

Consumer confidence

A separate preliminary report by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved slightly in May from a month earlier. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, is expected at 96.0 from Aprils final reading of 95.9. The gauge was at 93.0 in March.

The survey encompasses about 500 respondents throughout the country. The index is comprised of two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.

The sub-index of current economic conditions likely rose to 107.0, matching Aprils final value, while the sub-index of consumer expectations is projected at 88.6 from 88.8 last month.

In case the gauge of consumer sentiment came in above projections, this would boost demand for the greenback. The preliminary reading is due out at 14:00 GMT.

Canada

Foreign portfolio investment in Canadian securities probably slid to CAD 7.23 billion in March, according to the median forecast by experts, from CAD 9.27 billion in February, which was the highest since October.

This indicator reflects the flow of incoming investments in the local stock, bond and money markets. An increasing flow of foreign investments is usually related with a positive economic outlook for the country being invested in. This usually increases demand for its currency and vice versa. Therefore, in case portfolio investment in Canadian securities fell more than anticipated, this would have a certain bearish effect on Canadas dollar, and vice versa. The official report by Statistics Canada is due out at 12:30 GMT.

A separate report by the statistics agency might show that manufacturing sales in Canada probably rose 1.2% in March, according to market expectations, snapping two monthly declines. The Monthly Survey of Manufacturing features statistical data regarding sales of finished goods, inventories, unfilled orders and new orders in Canadas 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 not sufficient and vice versa. At the same time, a decrease in sales (shipments) speaks of weaker demand. Therefore, in case shipments increased at a faster-than-projected pace, this might have a bullish impact on the Canadian dollar, and vice versa.

Pivot points

According to Binary Tribune’s daily analysis, the pair’s central pivot point stands at 1.1970. In case it penetrates the first resistance level at 1.2021, it will encounter next resistance at 1.2056. If breached, upside movement may attempt to advance to 1.2107.

If the cross drops below its S1 level at 1.1935, it will next see support at 1.1884. If the second key support zone is breached, downward movement may extend to 1.1849.

In weekly terms, the central pivot point is at 1.2064. The three key resistance levels are as follows: R1 – 1.2190, R2 – 1.2309, R3 – 1.2435. The three key support levels are: S1 – 1.1945, S2 – 1.1819, S3 – 1.1700.