Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3171-1.3244. The pair closed at 1.3188, shedding 0.21% compared to Mondays close. It has been the 138th drop in the past 302 trading days. The daily high has been the highest level since March 28th, when a high of 1.3286 was registered. The major pair has pared its advance to 2.11% so far during the current month, following a 1.29% slump in June.
At 7:46 GMT today USD/CAD was inching up 0.01% on the day to trade at 1.3189. The pair touched a daily high at 1.3211 during early European trade, overshooting the range resistance level (R3), and a daily low at 1.3160 during the early phase of the Asian trading session.
Meanwhile, crude oil futures marked their 86th drop out of the past 157 trading days on July 26th. Oil for September delivery went down as low as $42.36 per barrel, or a level unseen since April 20th, and closed at $42.92, shedding 0.49% compared to Monday’s close. As of 7:57 GMT today the commodity was edging down 0.09% to trade at $42.88, after going down as low as $42.64 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.
On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United States
Durable Goods Orders
The value of durable goods orders in the United States probably decreased for a second straight month in June, going down 1.1% from a month ago, according to the median forecast by experts. In May orders fell at a revised up monthly rate of 2.3% (-2.2% previously).
The value of shipments of manufactured durable goods, down in three out of the past four months, shrank 0.2% (or USD 0.5 billion) in May to reach USD 231.7 billion. The value of unfilled orders for manufactured durable goods, up in four out of the past five months, rose 0.2% (or USD 2.0 billion) in May to reach USD 1,139.4 billion. At the same time, the value of inventories of manufactured durable goods, down in ten out of the past eleven months, shrank 0.3% (or USD 1.1 billion) during the period to USD 382.5 billion, according to data by the US Census Bureau.
Non-defense new orders for capital goods dropped 0.8% (or USD 0.6 billion) in May to USD 73.8 billion, while defense new orders for capital goods slumped 28.0% (or USD 3.7 billion) during the month to USD 9.5 billion.
The value of durable goods orders, excluding transportation, probably rose 0.3% in June from a month ago, according to expectations, following an unrevised 0.3% drop in May.
In case the general index fell at a faster-than-projected pace, this would have a strong bearish effect on the US dollar, due to negative implications in regard to the wider gauge of production, factory orders. The US Census Bureau is scheduled to release the official report at 12:30 GMT.
Pending Home Sales
The index of pending home sales in the United States probably rose 1.4% in June from a month ago, according to the median estimate by experts. In May pending home sales dropped 3.7%, or the most since December 2013, when sales fell at a revised down monthly rate of 5.8%.
In annual terms, contracts to buy previously owned homes in the United States were 0.2% fewer in May, after a 4.6% surge in April. It has been the first annual drop since August 2014.
In case pending home sales increased at a faster pace than anticipated in June, this would have a moderate bullish effect on the US dollar. The National Association of Realtor’s (NAR) will report on the official index performance at 14:00 GMT.
FOMC policy decision
The Federal Open Market Committee (FOMC) will probably keep the target range for the federal funds rate intact between 0.25% and 0.50% at its two-day policy meeting, scheduled to be concluded today, according to the median forecast by experts.
In December 2015 the Committee raised borrowing costs by 25 basis points to the current 0.500% level for the first time in 55 policy meetings.
In June the target range was left intact. Policy makers revised down their GDP estimate for 2016 and 2017, but revised up their PCE inflation estimate regarding 2016. Economy is now projected to expand 2.0% in 2016 (down from 2.2% as expected previously) and by another 2.0% in 2017 (down from 2.1% as expected in March). The Personal Consumption Expenditure Price Index is now projected to rise 1.4% in 2016 (up from a 1.2% surge as expected in March) and by 1.9% in 2017 (unchanged from the March estimate).
According to the FOMCs Policy Statement released in June: ”Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committees 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.”
The Minutes from the FOMCs meeting on June 14th-15th underscored concerns over the risks coming from an eventual Brexit. ”An additional factor in the Committees policy deliberations was the upcoming U.K. referendum on membership in the European Union. Members noted the considerable uncertainty about the outcome of the vote and its potential economic and financial market consequences. They indicated that they would closely monitor developments associated with the referendum as well as other global economic and financial developments that could affect the U.S. outlook”, the Minutes stated.
”Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data regarding labor market conditions as well as information that would allow them to assess the consequences of the U.K. vote for global financial conditions and the U.S. economic outlook. They judged that their decisions about the appropriate level of the federal funds rate in coming months would depend importantly on whether incoming information corroborated the Committees expectations for economic activity, the labor market, and inflation.”
The FOMC will announce its official decision on policy at 18:00 GMT.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.598% on July 26th, after which it closed at 0.595% to add 1.7 basis points (0.017 percentage point) compared to July 25th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.778% on July 26th, or the highest level since June 23rd (0.787%), after which it fell to 0.758% at the close to add 1.9 basis points (0.019 percentage point) compared to July 25th.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.163% on July 26th from 0.161% on July 25th. The July 26th yield spread has been the highest one since July 13th, when the difference was 0.170%.
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 – 1.3195
R2 – 1.3201
R3 (Range Resistance – Sell) – 1.3209
R4 (Long Breakout) – 1.3228
R5 (Breakout Target 1) – 1.3252
R6 (Breakout Target 2) – 1.3261
S1 – 1.3181
S2 – 1.3175
S3 (Range Support – Buy) – 1.3168
S4 (Short Breakout) – 1.3148
S5 (Breakout Target 1) – 1.3124
S6 (Breakout Target 2) – 1.3115
By using the traditional method of calculation, the weekly levels of importance for USD/CAD are presented as follows:
Central Pivot Point – 1.3078
R1 – 1.3234
R2 – 1.3341
R3 – 1.3497
R4 – 1.3652
S1 – 1.2971
S2 – 1.2815
S3 – 1.2708
S4 – 1.2600
In monthly terms, for USD/CAD we have the following pivots:
Central Pivot Point – 1.2907
R1 – 1.3163
R2 – 1.3401
R3 – 1.3657
R4 – 1.3913
S1 – 1.2669
S2 – 1.2413
S3 – 1.2175
S4 – 1.1937
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