Friday’s trade (in GMT terms) saw USD/CAD within the range of 1.3002-1.3188. The pair closed at 1.3028, plummeting 0.97% compared to Thursdays close. It has been the 140th drop in the past 305 trading days, a second consecutive one and also the steepest one since June 3rd, when the pair depreciated 1.21%. The daily low has been the lowest level since July 19th, when a low of 1.2940 was registered. In weekly terms, USD/CAD lost 0.75% of its value during the past week. It has been the 20th drop in the past 30 weeks. The major pair advanced 0.80% in July, rebounding after a 1.29% slump in June.
At 8:21 GMT today USD/CAD was edging up 0.13% on the day to trade at 1.3045. The pair touched a daily high at 1.3065 during early Asian trade, undershooting the daily R2 level, and a daily low at 1.3027 during the late phase of the Asian trading session.
Meanwhile, crude oil futures marked their 72nd gain out of the past 160 trading days on July 29th. Oil for September delivery went down as low as $40.57 per barrel, or a level unseen since April 20th, and closed at $41.60, surging 1.12% compared to Thursday’s close. As of 8:29 GMT today the commodity was shedding 0.63% to trade at $41.34, after going down as low as $41.22 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.
On Monday USD/CAD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
United States
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers Index for July probably confirmed the preliminary reading of 52.9, according to the median forecast by analysts. It has been the highest PMI reading since October 2015, when a final 54.1 was reported. In June the final seasonally adjusted PMI stood at 51.3, down from a preliminary reading of 51.4.
According to the preliminary report by Markit, ”Higher levels of manufacturing production have now been recorded for the past two months, with the latest expansion the fastest since November 2015.”
”An acceleration of production growth was driven by a robust rise in new business volumes in July. The latest expansion was the fastest for nine months and close to its post-crisis average. Meanwhile, new export orders rose at a weaker pace than seen for overall new business, suggesting that domestic markets remained the main driver of growth in July.”
”Manufacturers also boosted their input buying in response to greater workloads. Higher levels of purchasing activity have now been recorded for three months running, but the latest survey indicated that input stocks were depleted again. Finished goods inventories also decreased in July, which firms linked to deliberate stock reduction policies and associated efforts to boost efficiency”, Markit stated.
Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the final PMI for July came in line with expectations or accelerated even further, this would lead to a moderate bullish impact on the US dollar. The final reading is due out at 13:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably increased at a slower pace in July, with the corresponding manufacturing PMI coming in at a reading of 53.0, according to market expectations, down from 53.2 in June. If so, this would be the fifth consecutive month of expansion, which followed four successive months of contraction.
Junes PMI level has been the highest one since February 2015. The New Orders Index came in at 57.0 in June, rising from 55.7 in May. The sub-gauge of production was reported at 54.7 in June, accelerating from 52.6 in the preceding month. The index of employment rose to a value of 50.4 in June from 49.2 in the preceding month. The gauge of prices was at 60.5 in June, falling from 63.5 in May, which suggested lower prices of raw materials for the first time in four months. In May, out of a total of 18 manufacturing industries, 13 reported growth, 3 reported contraction and 2 reported no change in overall business activity, according to the report by the Institute for Supply Management (ISM).
Readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case, however, the PMI slowed down more than anticipated, this would have a strong bearish effect on the US dollar. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.
Correlation with other Majors
Taking into account the business week ended on July 29th 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/JPY (0.9568, or very strong)
USD/CAD to USD/CHF (0.9095, or very strong)
USD/CAD to GBP/USD (-0.6671, or strong)
USD/CAD to EUR/USD (-0.9291, or very strong)
USD/CAD to NZD/USD (-0.9392, or very strong)
USD/CAD to AUD/USD (-0.9876, or very strong)
1. During the examined period USD/CAD moved almost equally in one and the same direction with USD/CHF and USD/JPY. This relationship has been the most pronounced between USD/CAD and USD/JPY.
2. USD/CAD moved almost equally in the opposite direction compared to EUR/USD, NZD/USD and AUD/USD during the past week. This relationship has been the most pronounced between USD/CAD and AUD/USD, with the correlation between the two pairs being almost perfect.
3. USD/CAD moved strongly in the opposite direction compared to GBP/USD during the period in question.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.611% on July 29th, or the highest level since July 21st (0.622%), after which it closed at 0.540% to lose 4.6 basis points (0.046 percentage point) compared to July 28th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.750% on July 29th, after which it fell to 0.659% at the close to lose 5.6 basis points (0.056 percentage point) compared to July 28th.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.119% on July 29th from 0.129% on July 28th. The July 29th yield spread has been the lowest one since July 21st, when the difference was 0.115%.
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 – 1.3045
R2 – 1.3062
R3 (Range Resistance – Sell) – 1.3079
R4 (Long Breakout) – 1.3130
R5 (Breakout Target 1) – 1.3190
R6 (Breakout Target 2) – 1.3214
S1 – 1.3011
S2 – 1.2994
S3 (Range Support – Buy) – 1.2977
S4 (Short Breakout) – 1.2926
S5 (Breakout Target 1) – 1.2866
S6 (Breakout Target 2) – 1.2842
By using the traditional method of calculation, the weekly levels of importance for USD/CAD are presented as follows:
Central Pivot Point – 1.3095
R1 – 1.3187
R2 – 1.3347
R3 – 1.3439
R4 – 1.3532
S1 – 1.2935
S2 – 1.2843
S3 – 1.2683
S4 – 1.2524
In monthly terms, for USD/CAD we have the following pivots:
Central Pivot Point – 1.3038
R1 – 1.3244
R2 – 1.3460
R3 – 1.3666
R4 – 1.3872
S1 – 1.2822
S2 – 1.2616
S3 – 1.2400
S4 – 1.2184
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