Forex Market: USD/CAD trading outlook for September 7th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.2827-1.2935. The pair closed at 1.2846, sliding 0.64% compared to Mondays close. It has been the 158th drop in the past 332 trading days and also a fourth consecutive one. The daily low has been a level unseen since August 19th, when a low of 1.2773 was registered. The major pair has increased its slump to 1.98% so far during the current month, following a 0.59% gain in August.

At 9:11 GMT today USD/CAD was inching up 0.02% on the day to trade at 1.2849. The pair touched a daily high at 1.2863 during early Asian trade, undershooting the daily R2 level, and a daily low at 1.2833 during the late phase of the Asian trading session.

Meanwhile, crude oil futures marked their 87th gain out of the past 186 trading days on September 6th. Oil for October delivery went up as high as $46.53 per barrel, or a level unseen since August 30th, and closed at $44.83, gaining 0.88% compared to Friday’s close. As of 9:05 GMT today the commodity was advancing 1.07% to trade at $45.31, after going up as high as $45.37 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

Job Openings

The number of job openings in the United States probably dropped to 5.580 million in July, according to the median forecast by experts, from 5.624 million during the preceding month. In June, the number of positions waiting to be filled rose mostly in durable goods manufacturing (+37 000), while decreasing in federal government (-15 000).

This indicator refers to all job positions that are open, but not filled on the last business day of the month. Job openings are part of the Job Openings and Labor Turnover Survey (JOLTS), which gathers data from about 16 400 non-farm establishments including retailers and manufacturers, as well as federal, state, and local government entities in the 50 states and the District of Columbia. The survey assesses the unmet demand for labor in the labor market. A lower-than-projected level of job openings will usually have a limited bearish effect on the US Dollar. The Bureau of Labor Statistics is to release the official report at 14:00 GMT.

Beige Book

At 18:00 GMT the Federal Reserve is to release its ”Beige Book” report. It is published eight times during the year. Each of the banks in the 12 Federal Reserve Districts gathers data in regard to current economic situation in the country on the basis of interviews with key business contacts, economists, market experts, and other sources. In case the Beige Book presents an optimistic economic outlook, this will usually support the US Dollar, while a pessimistic view will have a bearish effect on the currency.

Canada

BoC policy decision

Bank of Canada’s (BoC) Governing Council will probably leave the target for the benchmark interest rate (overnight rate) without change at 0.50% at the policy meeting today, according to market expectations. At its meeting on July 15th 2015 the central bank cut its benchmark by 0.25% to the current level, the Bank Rate was reduced to 0.75% from 1.00%, while the Deposit Rate was lowered to 0.25% from 0.50%.

At the July meeting all key rates were left intact, but, however, BoC policy makers revised down Canadas growth forecast to 1.3% in 2016 from a 1.7% growth estimate previously due to weak business investment and shrinking exports.

According to excerpts from the BoC Statement from July 13th 2016: ”…the quarterly pattern of growth has been uneven. Real GDP grew by 2.4 per cent in the first quarter but is estimated to have contracted by 1 per cent in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. A pick-up to 3 1/2 per cent is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray. Consumer spending will also get a boost from the Canada Child Benefit.”

”While the fundamental elements of the Bank’s projection are similar to those presented in April, the forecast has been revised down in light of a weaker outlook for business investment and a lower profile for exports, reflecting a downward adjustment to US investment spending. Real GDP is expected to grow by 1.3 per cent in 2016, 2.2 per cent in 2017, and 2.1 per cent in 2018. The Bank projects above-potential growth from the second half of 2016, lifted by rising US demand and supported by accommodative monetary and financial conditions.”

”Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast. At the same time, financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas.”

The official policy decision is scheduled to be announced at 14:00 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.601% on September 6th, after which it closed at 0.569% to lose 2.4 basis points (0.024 percentage point) compared to September 2nd.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.806% on September 6th, after which it fell to 0.734% at the close to lose 6.8 basis points (0.068 percentage point) compared to September 5th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.165% on September 6th from 0.201% on September 2nd. The September 6th yield spread has been the lowest one since August 18th, when the difference was 0.137%.

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 – 1.2856
R2 – 1.2866
R3 (Range Resistance – Sell) – 1.2876
R4 (Long Breakout) – 1.2905
R5 (Breakout Target 1) – 1.2940
R6 (Breakout Target 2) – 1.2954

S1 – 1.2836
S2 – 1.2826
S3 (Range Support – Buy) – 1.2816
S4 (Short Breakout) – 1.2787
S5 (Breakout Target 1) – 1.2752
S6 (Breakout Target 2) – 1.2738

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

Central Pivot Point – 1.3040
R1 – 1.3097
R2 – 1.3207
R3 – 1.3264
R4 – 1.3322

S1 – 1.2930
S2 – 1.2873
S3 – 1.2763
S4 – 1.2654

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

Central Pivot Point – 1.3024
R1 – 1.3283
R2 – 1.3462
R3 – 1.3721
R4 – 1.3981

S1 – 1.2845
S2 – 1.2586
S3 – 1.2407
S4 – 1.2229