Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.3289-1.3400. The pair closed at 1.3348, inching up 0.04% on a daily basis. It has been the first drop in the past four trading days. The daily high was a lower-high test of the high from December 2nd.

At 9:53 GMT today USD/CAD was losing 0.10% for the day to trade at 1.3339. The pair touched a daily low at 1.3337 at 9:47 GMT, testing the daily S1 level. Support may be received within the 1.3280-1.3300 area, where the pair found support in the last week of November. On the other hand, USD/CAD may encounter resistance in the area around the high from December 3rd (1.3400).

On Friday USD/CAD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United States

Non-farm Payrolls, Unemployment rate, Average Earnings per Hour

Employers in all sectors of economy in the United States, excluding the farming industry, probably added 200 000 new jobs in November, according to the median forecast by experts, after a job gain of 271 000 in October. The latter has been the highest job growth since May 2015, when 280 000 new job positions were added.

Employment in professional and business services rose by 78 000 in October, or well above an average growth of 52 000 a month during the past 12 months. Employment in the health care sector increased by 45 000 during the month, while retail trade added 44 000 positions. Employment in food services and drinking places rose by 42 000 in October, while the sector of construction added 31 000 jobs. On the other hand, employment in manufacturing, wholesale trade, transportation and warehousing, information, financial activities and the governmental sector was little changed in October, according to the report by the Bureau of Labor Statistics (BLS).

The non-farm payrolls report presents the total number of US employees in any business, excluding the following four groups: farm employees, general government employees, employees of non-profit organizations, private household employees. The reading, released most often, varies between 10 000 and as much as 250 000 – 300 000 at times when economy is performing well. Despite the volatility and the possibility of large revisions, the non-farm payrolls indicator presents the most timely and comprehensive reflection of the current economic state. Total non-farm payrolls account for 80% of the workers, who produce the entire Gross Domestic Product of the United States. In case of a larger-than-expected gain in jobs in November, demand for the US dollar would be strongly supported.

Average Hourly Earnings probably increased 0.2% in November compared to the prior month, according to market expectations, following a 0.4% surge in October. The latter has been the sharpest monthly increase in hourly earnings since January 2015.

The rate of unemployment in the country probably remained at 5.0% for a second consecutive month in November, according to expectations. It has been the lowest level since April 2008, when a rate of 5.0% was reported.

The total number of people unemployed was almost unchanged at 7.9 million in October. The unemployment rate for adult men (4.7%), adult women (4.5%), teenagers (15.9%), whites (4.4%), blacks (9.2%), Asians (3.5%), and Hispanics (6.3%) showed little or no change during the month. The number of long-term unemployed (those looking for employment for 27 weeks or more) was almost unchanged at 2.1 million during October and comprised 26.8% of the unemployed, according to the BLS.

In case the unemployment rate met expectations or even fell further, this would have a bullish effect on the US dollar, because of the positive implications for consumer spending. The Bureau of Labor Statistics will release the official employment data at 13:30 GMT.
1.3339 -0.0014 -0.10%

Balance of Trade

The deficit on US balance of trade probably widened to USD 41.0 billion in October, according to market expectations. In September the trade gap was reported at USD 40.8 billion, which has been the smallest since February 2015, when a deficit of USD 35.40 billion was registered.

Total exports expanded at a monthly rate of 1.6% in September to reach USD 187.9 billion, supported by artwork, antique, stamps, jewelry and capital goods.

Exports of goods rose USD 2.9 billion to reach USD 127.3 billion in September. Exports of services went up USD 0.1 billion to USD 60.6 billion during the same month, supported by higher sales of travel and other business services, including research and development services; professional and management services; technical and trade-related services.

Total imports, at the same time, shrank at a monthly rate of 1.8% to reach USD 228.7 billion in September. Imports of goods fell USD 4.4 billion to USD 187.6 billion during the month. Imports of industrial supplies and materials were USD 1.6 billion lower to reach their lowest level since August 2009, driven by a drop in imports of crude oil (-USD 1.3 billion) and imports of capital goods (-USD 1.0 billion).

US exports to Canada rose 0.4%, those to the EU went up 7.7% and those to China were 2.8% higher in September. On the other hand, exports to Japan decreased 13.8% month-over-month to their lowest level since April 2010, while sales to Mexico were down 0.1%.

In case a larger-than-projected deficit figure is reported, this would cause a strong bearish impact on the US dollar, because of the negative implications for growth. The Bureau of Economic Analysis will release the official trade data at 13:30 GMT.

Canada

Change in employment, Unemployment rate

The number of the employed people in Canada probably increased by 700 in November, according to market expectations. In October the number of the employed rose by 44 400, or the most since May 2015, when a number of 58 900 was reported. Compared to 12 months earlier, Canadian employment rose by 143 000 (or 0.8%) in October, as the entire gain was due to a surge in full-time employment.

Part-time employment increased by 35 400 in October, while full-time employment – by 9 000. The labor force expanded by 32 200 to reach 19 374 800 in October. During the period employment for women aged 55 and older rose, while employment among women aged between 25 and 54 decreased. There was insignificant change in employment numbers regarding the other demographic groups, according to the report by the Statistics Canada.

Meanwhile, the rate of unemployment in the country probably remained at 7.0% for a second consecutive month in November. In September the rate was 7.1%, or the highest level of unemployment since June 2014, when a rate of 7.1% was reported.

A higher-than-expected rate of increase in employment and a drop in unemployment rate would have a strong bullish effect on the local currency. Statistics Canada is expected to release the official employment report at 13:30 GMT.

Balance of Trade

The deficit on Canadian balance of trade probably widened to CAD 1.90 billion in October, according to the median estimate by experts, following a deficit figure of CAD 1.73 billion in the preceding month.

In September total exports grew 0.7% to reach CAD 44.51 billion. Exports with the exclusion of energy products went up 0.2%, while shipments of consumer goods were up 4.6%, supported by pharmaceutical and medicinal products (+20.8%). Canadian exports of energy products expanded 3.7%, as sales of crude oil and crude bitumen went up 2.7%. Shipments of metal and non-metallic mineral products went up 3.2% in September.

Canadas total imports shrank 1.3% to reach CAD 46.24 billion in September, following four straight months of increase. Purchases of metal and non-metallic mineral products marked a 14.3% slump during the month, as imports of unwrought precious metals and precious metal alloys shrank 42.8%. Purchases of energy products went down 12.3% in September, driven by a 19.6% drop in imports of crude oil and crude bitumen.

In case the Canadian trade balance gap widened more than projected in October, this would have a strong bearish effect on the loonie. Statistics Canada will release the official trade data at 13:30 GMT.

Ivey PMI

Activity among purchasing managers in Canada probably improved in November, with the corresponding seasonally adjusted Purchasing Managers Index coming in at a value of 55.3. If so, November would be the eighth consecutive month, when the index inhabited the area above 50.0. In October the gauge was reported at a level of 53.1. This indicator is based on a survey sponsored by Richard Ivey School of Business and Canadian Purchasing Management Association. It encompasses 175 respondents in both the public and the private sector, selected in accordance with their geographic location and activity, so that the entire economy is covered. Activity among purchasing managers is closely watched by market players, as managers usually have an early access to data regarding performance of their companies, which could be used as a leading indicator of overall economic activity. Readings at the key level of 50.0 are indicative of no change in business conditions, while those above it suggest optimism (expanding activity). In case the PMI demonstrated a larger-than-expected improvement, this would have a moderate-to-strong bullish effect on the Canadian dollar. The official index reading is due out at 15:00 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.664% on December 3rd, or the highest level since November 12th (0.675%), after which it closed at 0.653% to add 3.4 basis points (0.034 percentage point) compared to December 2nd. It has been the fifth gain in the past nine trading days and also a second consecutive one.

The yield on US 2-year government bonds climbed as high as 0.994% on December 3rd, or the highest level in more than seven months, after which it closed at 0.951% to add 1.2 basis points (0.012 percentage point) compared to December 2nd. It has been the 12th gain in the past 14 trading days.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.298% on December 3rd from 0.320% on December 2nd. The December 3rd yield spread has been the lowest one since November 27th, when the difference was 0.295%.

Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.650% on December 3rd, or the highest level since November 23rd (1.662%), after which it slid to 1.621% at the close to add 10.6 basis points (0.106 percentage point) compared to December 2nd. It has been the fourth gain in the past nine trading days and also a second consecutive one.

The yield on US 10-year government bonds climbed as high as 2.347% on December 3rd, or the highest level since November 12th (2.354%), after which it slipped to 2.303% at the close to add 12.5 basis points (0.125 percentage point) compared to December 2nd. It has been the second consecutive gain, following seven straight trading days of decline.

The spread between 10-year US and 10-year Canadian bond yields widened to 0.682% on December 3rd from 0.663% on December 2nd. The December 3rd yield difference has been the largest one since September 16th, when the spread was 0.701%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:

R1 – 1.3358
R2 – 1.3368
R3 (range resistance) – 1.3379
R4 (range breakout) – 1.3409

S1 – 1.3338
S2 – 1.3328
S3 (range support) – 1.3317
S4 (range breakout) – 1.3287

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

Central Pivot Point – 1.3362
R1 – 1.3447
R2 – 1.3523
R3 – 1.3608

S1 – 1.3286
S2 – 1.3201
S3 – 1.3125