Forex Market: USD/CAD trading outlook for August 8th 2016

Friday’s trade (in GMT terms) saw USD/CAD within the range of 1.3009-1.3202. The pair closed at 1.3171, soaring 1.17% compared to Thursdays close. It has been the 167th gain in the past 310 trading days and also the steepest one since June 24th, when the cross went up 1.82%. The daily high has been the highest level since July 27th, when a high of 1.3254 was registered. In weekly terms, GBP/USD added 1.10% to its value during the past week. It has been the 11th gain in the past 31 weeks and also the sharpest one since the week ended on July 22nd, when the cross appreciated 1.19%. The major pair has neutralized its earlier loss and is now up 1.10% so far during the current month, following a 0.80% gain in July.

At 8:33 GMT today USD/CAD was edging down 0.09% on the day to trade at 1.3159. The pair touched a daily high at 1.3191 during early Asian trade, overshooting the daily R1 level, and a daily low at 1.3154 during the early phase of the European trading session.

Meanwhile, crude oil futures marked their 91st drop out of the past 165 trading days on August 5th. Oil for September delivery went down as low as $41.06 per barrel and closed at $41.80, edging down 0.31% compared to Thursday’s close. As of 8:43 GMT today the commodity was advancing 1.34% to trade at $42.36, after going up as high as $42.40 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 report as listed below.

Fundamentals

Canada

Building Permits

The overall value of building permits in Canada, issued by municipalities, probably increased 1.5% in June, according to market expectations. The total value of building permits in the country went down 1.9% to reach CAD 6.8 billion in May compared to a month ago, due to lower construction intentions for commercial buildings in Quebec and Ontario and single-family houses in Ontario. The value of non-residential permits shrank 3.3% to CAD 2.5 billion, due to a 15.6% drop in construction intentions for commercial buildings. The value of residential permits contracted 1.1% to CAD 4.3 billion, as permits for single-family dwellings declined 7.2%.

Building permits, as an indicator, provide information regarding demand in Canada’s housing sector. In case the total value of permits increased more than expected in June from a month earlier, this would have a limited-to-moderate bullish effect on the Canadian Dollar. Statistics Canada is expected to release the official numbers at 12:30 GMT.

Correlation with other Majors

Taking into account the business week ended on August 5th 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 (0.5074, or strong)
USD/CAD to USD/CHF (0.1826, or weak)
USD/CAD to NZD/USD (-0.0943, or very weak)
USD/CAD to EUR/USD (-0.1388, or weak)
USD/CAD to GBP/USD (-0.1528, or weak)
USD/CAD to AUD/USD (-0.2339, or weak)

1. During the examined period USD/CAD moved strongly in one and the same direction with USD/JPY.

2. USD/CAD moved almost independently compared to NZD/USD during the past week.

3. The correlation between USD/CAD and the remaining major pairs was insignificant.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.543% on August 5th, after which it closed at 0.520% to lose 1.8 basis points (0.018 percentage point) compared to August 4th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.726% on August 5th, or the highest level since July 29th (0.750%), after which it fell to 0.725% at the close to add 7.8 basis points (0.078 percentage point) compared to August 4th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.205% on August 5th from 0.109% on August 4th. The August 5th yield spread has been the largest one since June 14th, when the difference was 0.229%.

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 – 1.3189
R2 – 1.3206
R3 (Range Resistance – Sell) – 1.3224
R4 (Long Breakout) – 1.3277
R5 (Breakout Target 1) – 1.3339
R6 (Breakout Target 2) – 1.3366

S1 – 1.3153
S2 – 1.3136
S3 (Range Support – Buy) – 1.3118
S4 (Short Breakout) – 1.3065
S5 (Breakout Target 1) – 1.3003
S6 (Breakout Target 2) – 1.2976

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

Central Pivot Point – 1.3123
R1 – 1.3250
R2 – 1.3329
R3 – 1.3456
R4 – 1.3583

S1 – 1.3044
S2 – 1.2917
S3 – 1.2838
S4 – 1.2759

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