Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.3639-1.3794. The pair closed at 1.3758, shedding 0.16% on a daily basis. It has been the 10th drop in the past 23 trading days and also a second consecutive one. The daily low has been the lowest level since December 11th, when a low of 1.3619 was registered.

At 8:56 GMT today USD/CAD was losing 0.15% for the day to trade at 1.3737. The pair touched a daily low at 1.3716 at 7:10 GMT and a daily high at 1.3762 during the early phase of the Asian trading session.

Canada’s dollar has recently been supported by a surge in crude oil prices. Wednesday marked the 17th gain in prices out of the past 34 trading days. Oil futures for March delivery went up as high as $33.60 per barrel on February 4th, or the highest level since February 1st, but closed at a level of $31.58 to mark their 18th drop in the past 35 trading days. As of 9:04 GMT today the commodity was inching down 0.06% on a daily basis to trade at $31.56 per barrel, after going down as low as $31.38 earlier. Oil has increased its slump to 6.17% so far during the current month.

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

Fundamentals

United States

Non-farm Payrolls, Average Hourly Earnings, Unemployment Rate

Employers in all sectors of economy in the United States, excluding the farming industry, probably added 190 000 new jobs in January, according to the median forecast by experts, after a job gain of 292 000 in December. The latter has been the highest job growth since December 2014, when 329 000 new job positions were added.

Employment in professional and business services rose by 73 000 in December, while for the full 2015 the sector added 605 000 job positions. Employment in the sector of construction increased for a third consecutive month in December, adding 45 000 jobs, while health care added 39 000 positions. Employment in food services and drinking places rose by 37 000 in December, while the sector of transportation and warehousing added 23 000 jobs. On the other hand, employment in US mining continue to decrease in December (-8 000 jobs), while for the full 2015 the sector lost 129 000 jobs, according to the report by the Bureau of Labor Statistics (BLS). Employment in other key industries such as wholesale trade, retail trade, financial activities and government remained little changed during the month.

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 January, demand for the US dollar would be strongly supported.

Average Hourly Earnings probably increased 0.3% in January compared to the prior month, according to market expectations, after remaining flat in December. If so, this would be the sharpest monthly increase in hourly earnings since October 2015.

The rate of unemployment in the country probably remained at 5.0% for a fourth consecutive month in January, 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 December. The unemployment rate for adult men (4.7%), adult women (4.4%), teenagers (16.1%), whites (4.5%), Asians (4.0%), and Hispanics (6.3%) showed little or no change during the month, while the rate of unemployment for blacks decreased to 8.3%. 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 26.3% of the unemployed, according to the BLS. In case the overall rate of unemployment met expectations or fell further, this would have a strong bullish effect on the US dollar.

The official employment data are due out at 13:30 GMT.

Balance of Trade

The deficit on US balance of trade probably widened to USD 43.0 billion in December, according to market expectations. In November the trade gap was reported at USD 42.4 billion, which has been the smallest since September 2015, when a deficit of USD 40.80 billion was registered.

Total exports decreased at a monthly rate of 0.9% in December to reach USD 182.2 billion. Exports of goods fell USD 1.4 billion to reach USD 122.2 billion in December. Exports of services went down USD 0.1 billion to USD 60.0 billion during the same month.

Total imports, at the same time, shrank at a monthly rate of 1.7% to reach USD 224.6 billion in December. Imports of goods were USD 3.7 billion lower to reach USD 183.5 billion, while imports of services fell USD 0.1 billion.

In case the gap on US trade balance widened more than anticipated in December, this would have a moderate bearish effect on the US dollar. The official report is to be released at 13:30 GMT.

Canada

Balance of Trade

The deficit on Canadian balance of trade probably widened to CAD 2.200 billion in December, according to the median estimate by experts, following a deficit figure of CAD 1.99 billion in the preceding month. The latter has been the lowest trade gap since July 2015.

In November total exports grew 0.4% to reach CAD 43.25 billion. Exports of motor vehicles and parts went up 5.9%, supported by shipments of passenger cars and light trucks (up 7.7%). In addition, Canadian exports of metal ores and non-metallic minerals soared 20.4%, while shipments of forestry products and building and packaging materials rose 5.5%. On the other hand, exports of energy products shrank 6.6% in November to reach its lowest level since May 2009, dragged down by exports of refined petroleum energy products (-30.8%) and exports of natural gas (-17.8%).

Canadas total imports shrank 0.7% to reach CAD 45.24 billion in November. Imports of electronic and electrical equipment and parts were 2.9% lower, dragged down by a decrease in purchases of communications and audio and video equipment (-9.1%). Imports of energy products shrank 6.4% to reach its lowest level since August 2004, as imports of crude oil and crude bitumen decline for a fifth consecutive month in November (-9.1%).

In case the gap on Canadas trade balance widened more than anticipated in December, this would have a moderate bearish effect on the Canadian dollar, due to negative implications regarding the nations economic growth. Statistics Canada is to release the official monthly report at 13:30 GMT.

Unemployment rate, Net change in employment

The number of the employed people in Canada probably increased by 5 500 in January, according to market expectations. In December the number of the employed rose by 22 800, or the most since October 2015, when a number of 44 400 was reported.

In December, 17 000 job positions were added in health care and social assistance, 15 000 – in educational services and 10 000 – in finance, insurance, real estate and leasing. During the month the number of self-employed persons rose by 40 000, while the number of employees in the private and the public sector remained almost unchanged. December also saw an increase in employment among people aged 55 and older, while employment regarding the other demographic groups was almost unchanged, according to the report by the Statistics Canada.

Meanwhile, the rate of unemployment in the country probably remained at 7.1% for a third consecutive month in January. In October the rate was at 7.0%.

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

Ivey PMI

Activity among purchasing managers in Canada probably showed no change in January, with the corresponding seasonally adjusted Purchasing Managers Index coming in at a value of 50.0. In December the gauge was reported at a level of 49.9, or the lowest since March 2015, when a PMI reading of 47.9 was reported. This indicator is based on a survey sponsored by Richard Ivey School of Business and the 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 below it suggest predominant pessimism (lower activity). In case the PMI came above market expectations, this would have a moderate-to-strong bullish effect on the Canadian dollar. The official index reading is due out at 15:00 GMT.

Daily and Weekly Pivot Levels

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

R1 – 1.3772
R2 – 1.3786
R3 (range resistance) – 1.3801
R4 (range breakout) – 1.3843

S1 – 1.3744
S2 – 1.3730
S3 (range support) – 1.3715
S4 (range breakout) – 1.3673

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

Central Pivot Point – 1.4082
R1 – 1.4218
R2 – 1.4463
R3 – 1.4599

S1 – 1.3837
S2 – 1.3701
S3 – 1.3456