Forex Market: USD/CAD trading outlook for August 3rd 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3005-1.3143. The pair closed at 1.3111, edging down 0.10% compared to Mondays close. It has been the 141st drop in the past 307 trading days. The cross has trimmed its advance to 0.64% so far during the current month, following a 0.80% rise in July.

At 7:45 GMT today USD/CAD was edging up 0.22% on the day to trade at 1.3140. The pair touched a daily high at 1.3149 during early European trade, making an exact test of the range resistance level (R3), and a daily low at 1.3095 during the early phase of the Asian trading session.

Meanwhile, crude oil futures marked their 90th drop out of the past 162 trading days on August 2nd. Oil for September delivery went down as low as $39.26 per barrel, or a level unseen since April 18th, and closed at $39.51, losing 1.37% compared to Monday’s close. As of 7:56 GMT today the commodity was edging up 0.10% to trade at $39.55, after going up as high as $39.86 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 as listed below.

Fundamentals

United States

Change in employment by the ADP

Employers in the US non-farm private sector probably added 170 000 new jobs during July, according to the median estimate by experts, following 172 000 new positions added in June. If expectations were met, this would be the lowest growth in non-farm private sector employment since April, when a revised up 166 000 jobs were added.

Employment in the goods-producing sector dropped by 36 000, while employment in services increased by 208 000 in June. Employment in trade, transportation and utilities grew by 55 000 during the month, in professional and business services – by 51 000 and in financial activities – by 2 000. On the other hand, employment in US manufacturing fell by 21 000, while the sector of construction lost 5 000 job positions.

The employment report by Automated Data Processing Inc. (ADP) is based on data that encompasses 400 000 – 500 000 companies employing over 24 million people, working in the 19 major sectors of the economy. The ADP employment change indicator is calculated in accordance with the same methodology, which the Bureau of Labor Statistics (BLS) uses. Published two days ahead of the governments employment statistics, this report is used by traders as a reliable predictor of the official non-farm payrolls data. Creation of jobs has a direct link to consumer spending, while the latter is a major driving force behind the US economic growth. In case new jobs growth fell short of expectations in July, this would have a moderate-to-strong bearish effect on the US dollar. The official figure is scheduled to be released at 12:15 GMT.

Services PMI by Markit – final reading

The final Services Purchasing Managers Index probably rose to 51.0 in July, according to market expectations, up from a preliminary reading of 50.9, which was reported on July 26th. If so, this would be the lowest PMI reading since February, when a final 49.7 was reported. In June the index came in at a final 51.4, up from a preliminary reading of 51.3. The PMI is based on data collected from a representative panel of more than 400 private sector companies, which encompasses industries such as transport and communication, financial intermediaries, business and personal services, computing & IT and hotels and restaurants. Values above the key level of 50.0 indicate optimism (expanding activity). In case services sector activity rose at a faster rate than anticipated in July, this would have a moderate bullish effect on the US dollar. The final data by Markit Economics is due out at 13:45 GMT.

ISM Non-Manufacturing PMI

Activity in United States’ sector of services probably increased at a slower pace in July from a month ago, with the corresponding non-manufacturing PMI coming in at a reading of 56.0, according to the median forecast by experts, down from a level of 56.5 in June. The latter has been the highest PMI reading since October 2015, when the gauge was reported at 59.1. If expectations were met, July would be the 79th consecutive month, when the PMI stood in the area above 50.0.

The New Orders Index stood at 59.9 in June, up from a reading of 54.2 in the prior month. The Employment Index moved back above the key 50.0 level to reach 52.7 in June, after being at 49.7 in May, according to data by the Institute for Supply Management (ISM). The Prices Index slipped to 55.5 in June from 55.6 in May, which indicated prices went up for a third consecutive month. The Non-Manufacturing Business Activity Index advanced to 59.5 in June from a reading of 55.1 in May, indicating growth for an 83rd straight month.

In case the Non-Manufacturing PMI slowed down more than anticipated in July, 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.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.573% on August 2nd, after which it closed at 0.558% to add 1.8 basis points (0.018 percentage point) compared to July 29th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.706% on August 2nd, or the highest level since July 29th (0.750%), after which it fell to 0.685% at the close to lose 0.002 percentage point compared to August 1st.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.127% on August 2nd from 0.119% on July 29th. The August 2nd yield spread has been the highest one since July 28th, when the difference was 0.129%.

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 – 1.3124
R2 – 1.3136
R3 (Range Resistance – Sell) – 1.3149
R4 (Long Breakout) – 1.3187
R5 (Breakout Target 1) – 1.3231
R6 (Breakout Target 2) – 1.3250

S1 – 1.3098
S2 – 1.3086
S3 (Range Support – Buy) – 1.3073
S4 (Short Breakout) – 1.3035
S5 (Breakout Target 1) – 1.2991
S6 (Breakout Target 2) – 1.2972

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