Forex Market: USD/CAD trading outlook for September 26th 2016

Friday’s trade (in GMT terms) saw USD/CAD within the range of 1.3030-1.3182. The pair closed at 1.3169, surging 0.97% compared to Thursdays close. It has been the 180th gain in the past 345 trading days and also the steepest one since September 13th. In weekly terms, USD/CAD lost 0.31% of its value during the past week. It has been the 24th drop in the past 38 weeks and also the steepest one since the week ended on August 21st. The major pair has neutralized earlier loss and is now up 0.49% so far during the current month, following a 0.59% gain in August.

At 8:46 GMT today USD/CAD was edging up 0.18% on the day to trade at 1.3193. The pair touched a daily high at 1.3197 during early European trade, making an exact test of the daily R2 level, and a daily low at 1.3149 during the early phase of the Asian trading session.

Meanwhile, crude oil futures marked their 104th drop out of the past 199 trading days on September 23rd. Oil for November delivery went down as low as $44.22 per barrel, or a level unseen since September 20th, and closed at $44.48, plummeting 3.97% compared to Thursday’s close. As of 8:42 GMT today the commodity was edging up 0.11% to trade at $44.53, after going up as high as $44.95 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 and other events as listed below.

Fundamentals

United States

Fed Speakers

At 13:30 GMT Federal Open Market Committee member Neel Kashkari is to take a statement, followed by Daniel Tarullo at 15:45 GMT and Robert Kaplan at 17:30 GMT. Any remarks in regard to the Bank’s policy stance or US economic outlook would certainly heighten USD volatility.

New Home Sales

Sales of new single-family homes probably decreased 8.8% to the seasonally adjusted annual rate of 597 000 in August, according to market expectations, from 654 000 reported in July. The latter has been the highest level since October 2007. Sales in the Northeast area grew 40% to 35 000 in July, those in the South went up 18.1% to 398 000, while sales in the Midwest increased 1.2% to 84 000. On the other hand, new home sales in the West remained unchanged at 137 000.

The median sales price of new houses sold went down as low as USD 294 600 in July, after being at USD 310 500 in the preceding month. The average sales price rose to USD 355 800 in July from a revised down USD 353 500 in June. At the end of the month, the seasonally adjusted estimate of new houses for sale was 233 000, down 2.9% from a month ago. It has been the lowest level so far in 2016 and represents a supply of 4.3 months at the current sales rate, according to the report by the US Census Bureau.

In case the index decreased more than anticipated, this would have a strong bearish effect on the US Dollar. The Census Bureau is to report the official figure at 14:00 GMT on Monday.

Canada

BoC Poloz statement

At 23:10 GMT Bank of Canada Governor, Stephen Poloz, is expected to speak. Any remarks regarding the central bank’s policy stance or Canadas economic outlook would certainly heighten CAD volatility.

Correlation with other Majors

Taking into account the business week ended on September 23rd 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 (0.7948, or strong)
USD/CAD to USD/CHF (0.7495, or strong)
USD/CAD to NZD/USD (-0.4271, or moderate)
USD/CAD to EUR/USD (-0.4531, or moderate)
USD/CAD to GBP/USD (-0.7266, or strong)
USD/CAD to AUD/USD (-0.8376, or very strong)

1. During the examined period USD/CAD moved strongly in the opposite direction compared to GBP/USD, while moving strongly in one and the same direction with USD/CHF and USD/JPY.

2. USD/CAD moved almost equally in the opposite direction compared to AUD/USD during the past week.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.579% on September 23rd, after which it closed at 0.525% to lose 4.6 basis points (0.046 percentage point) compared to September 22nd.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.787% on September 23rd, after which it fell to 0.758% at the close to lose 1.6 basis points (0.016 percentage point) compared to September 22nd.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.233% on September 23rd from 0.203% on September 22nd. The September 23rd yield spread has been the largest one since August 26th, when the difference was 0.238%.

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 – 1.3183
R2 – 1.3197
R3 (Range Resistance – Sell) – 1.3211
R4 (Long Breakout) – 1.3253
R5 (Breakout Target 1) – 1.3301
R6 (Breakout Target 2) – 1.3323

S1 – 1.3155
S2 – 1.3141
S3 (Range Support – Buy) – 1.3127
S4 (Short Breakout) – 1.3085
S5 (Breakout Target 1) – 1.3037
S6 (Breakout Target 2) – 1.3015

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

Central Pivot Point – 1.3138
R1 – 1.3275
R2 – 1.3382
R3 – 1.3519
R4 – 1.3657

S1 – 1.3031
S2 – 1.2894
S3 – 1.2787
S4 – 1.2681

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