Forex Market: USD/CAD daily trading outlook

Friday’s trade saw USD/CAD within the range of 1.2859-1.2976. The pair closed at 1.2910, edging down 0.12% compared to Thursdays close. It has been the 131st drop in the past 285 trading days and also a fourth consecutive one. The daily low has been the lowest level since June 24th, when a low of 1.2715 was registered. In weekly terms, USD/CAD lost 0.74% of its value during the past week. It has been the 18th drop in the past 26 weeks. The major pair has depreciated 0.31% so far during the current month, following a 1.29% slump in the prior month.

At 8:08 GMT today USD/CAD was edging down 0.15% on the day to trade at 1.2891. The pair touched a daily high at 1.2921 during the early phase of the Asian trading session, making an exact test of the daily R1 level, and a daily low at 1.2868 during late Asian trade.

Meanwhile, crude oil futures marked their 75th gain out of the past 140 trading days on July 1st. Oil for August delivery went up as high as $49.30 per barrel and closed at $48.99, gaining 1.37% compared to Thursday’s close. As of 8:16 GMT today the commodity was inching up 0.06% to trade at $49.02, after going up as high as $49.35 per barrel earlier.

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

Fundamentals

Canada

RBC Manufacturing PMI

At 13:30 GMT Royal Bank of Canada (RBC) is to report on manufacturing activity in June. The corresponding Manufacturing Purchasing Managers Index stood in the zone of expansion for a third consecutive month in May, coming in at a reading of 52.1, down from 52.2 in April.

In May the rate of production growth was the fastest since June 2015. On the other hand, the sub-gauge of new orders lost previous momentum, as export sales dropped slightly, while employment growth rate moderated.

The PMI report is based on data collected from monthly replies to questionnaires sent to supply managers in over 400 industrial companies. The PMI is a compound index based on five individual indexes: new orders, production, employment, delivery time, stocks of purchases. Values of the index above the key level of 50.0 indicate overall increase in activity in the sector, while readings below 50.0 are indicative of contraction in activity. PMIs are earlier indicators of economic conditions published on a monthly basis and are available much before the publication of relevant data from government authorities. This way they provide an earlier insight about economic development trends.

In case the gauge continued to inhabit the area above 50.00 and outpaced Mays reading, this would have a moderate bullish effect on the Canadian dollar.

BoC Business Outlook Survey

At 15:30 GMT Bank of Canada will release the results from its Business Outlook Survey. The latter represents a summary of interviews conducted by the bank’s regional offices with the senior management of about 100 business entities, selected in accordance with the composition of nation’s Gross Domestic Product. The major goal is to reflect the perspectives of these businesses on topics of key interest to the Bank of Canada, including demand and capacity pressures, as well as companies’ forward-looking views on economic activity. The survey encompasses opinions expressed by the respondents, which do not necessarily come in consonance with the Bank’s view or policy.

US Independence Day

Monday marks the Independence Day federal holiday in the United States, which commemorates the adoption of the Declaration of Independence on July 4th 1776, declaring independence from the Kingdom of Great Britain (at present the United Kingdom). Markets in the country are to remain closed.

Correlation with other Majors

Taking into account the business week ended on July 1st 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 (0.5963, or strong)
USD/CAD to GBP/USD (-0.4240, or moderate)
USD/CAD to USD/JPY (-0.6390, or strong)
USD/CAD to EUR/USD (-0.9723, or very strong)
USD/CAD to AUD/USD (-0.9798, or very strong)
USD/CAD to NZD/USD (-0.9818, or very strong)

1. During the examined period USD/CAD moved strongly in one and the same direction with USD/CHF, while moving strongly in the opposite direction compared to USD/JPY.

2. USD/CAD moved almost equally in the opposite direction compared to EUR/USD, AUD/USD and NZD/USD during the past week. This relationship has been the most pronounced between USD/CAD and NZD/USD, with the correlation between the two pairs being almost perfect.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.517% on July 1st, after which it closed at the exact same level to remain unchanged compared to June 30th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.601% on July 1st, after which it fell to 0.597% at the close to add 1.1 basis points (0.011 percentage point) compared to June 30th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.080% on July 1st from 0.069% on June 30th. The July 1st yield spread has been the highest one since June 29th, when the difference was 0.091%.

Daily, Weekly and Monthly Pivot Levels

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

R1 – 1.2921
R2 – 1.2931
R3 (range resistance) – 1.2942
R4 (range breakout) – 1.2974

S1 – 1.2899
S2 – 1.2889
S3 (range support) – 1.2878
S4 (range breakout) – 1.2846

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

Central Pivot Point – 1.2963
R1 – 1.3068
R2 – 1.3225
R3 – 1.3330

S1 – 1.2806
S2 – 1.2701
S3 – 1.2544

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

Central Pivot Point – 1.2950
R1 – 1.2987
R2 – 1.3050
R3 – 1.3087

S1 – 1.2887
S2 – 1.2850
S3 – 1.2787