Forex Market: USD/CAD trading outlook for September 30th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3048-1.3185. The pair closed at 1.3146, edging up 0.50% compared to Wednesdays close. It has been the 182nd gain in the past 349 trading days and also the steepest one since September 23rd. The major pair has neutralized earlier loss and is now up 0.31% so far during the current month, following a 0.59% gain in August.

At 8:35 GMT today USD/CAD was edging up 0.14% on the day to trade at 1.3165. The pair touched a daily high at 1.3195 during early European trade, overshooting the range resistance level (R3), and a daily low at 1.3140 during the late phase of the Asian trading session.

Meanwhile, crude oil futures marked their 98th gain out of the past 203 trading days on September 29th, supported by the OPEC agreement on production limits from a day ago. Oil for November delivery went up as high as $48.32 per barrel, or a level unseen since August 26th, and closed at $47.83, advancing 1.66% compared to Wednesday’s close. As of 8:22 GMT today the commodity was losing 1.28% to trade at $47.22, after going down as low as $47.04 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.

On Friday USD/CAD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

United States

Personal Income, Personal Spending and PCE Inflation

Personal spending in the United States probably grew 0.1% in August, according to market expectations, while personal income was probably up for a 17th consecutive month in August, increasing at a monthly rate of 0.2%.

Consumer spending, which accounts for over two thirds of the nation’s GDP, rose 0.3% in July, after a revised up 0.5% gain in June. July’s increase came as a result of higher spending on new motor vehicles and on services, which was partially offset by a drop in spending on non-durable goods.

At the same time, personal income increased 0.4% in July, following a 0.2% surge in the prior month. In July, wages and salaries went up 0.5%, proprietors’ income rose 0.2%, while rental income increased 0.7%. On the other hand, personal dividend income rebounded in July, going up 0.4%, as well as personal interest income, which was 0.4% higher.

Higher-than-expected rates of increase imply good employment conditions and, therefore, are dollar positive. The Bureau of Economic Analysis is to publish the official figures at 12:30 GMT.

At the same time, the Core PCE Price Index, the preferred measure of inflation by the Federal Reserve, probably rose 1.7% year-on-year in August, according to expectations. Annualized PCE inflation was at 1.6% in the previous five months. On a monthly basis, the Core PCE Price Index probably increased for an eighth consecutive month in August, going up 0.2%, according to analyst projections.

Chicago manufacturing activity barometer

The Chicago Purchasing Managers’ Index (PMI) probably accelerated to a reading of 52.0 in September, according to market expectations, from 51.5 during the prior month. If so, September would be the fourth consecutive month of activity expansion in the region. In August, the gauges of new orders and production rose at a slower rate, while the sub-index of employment soared to a 16-month high.

The index reflects business conditions in Chicago’s manufacturing sector and is interrelated with the Manufacturing Index, published by the Institute for Supply Management (ISM). A reading above the key level of 50.0 is indicative of optimism (expansion in manufacturing activity). In case the PMI accelerated more than forecast, this would have a moderate bullish effect on the US dollar. The ISM-Chicago Inc. will release the official reading of this barometer at 13:45 GMT.

Reuters/Michigan Consumer Sentiment Index – final reading

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved in September from a month ago. The final reading of the corresponding index, which usually comes out two weeks after the preliminary data, probably was at 90.0, up from a preliminary value of 89.8. In August the index stood at a final reading of 89.8, down from a preliminary value of 90.4. The survey encompasses about 500 respondents throughout the country. The index is comprised by two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.

According to the preliminary report, the sub-index of current economic conditions, which measures US consumers’ views of their personal finances, went down to 103.5 in September from a final reading of 107.0 in August. The sub-index of consumer expectations accelerated to a flash reading of 81.1 in September from a final value of 78.7 in August.

Respondents in the September survey expect that the rate of inflation during the next year will probably be 2.3%, or the lowest since September 2010, down from 2.5% as expected in the August survey.

In case the final value of the September consumer sentiment index outpaced the median forecast by analysts, this would have a moderate bullish effect on the US dollar. The final reading is due out at 14:00 GMT.

Canada

Gross Domestic Product

Canadian real Gross Domestic Product (GDP) probably expanded 0.3% in July compared to a month ago, according to the median forecast by experts, following a 0.6% increase in June. The latter has been the fastest monthly surge since July 2013.

In June, output recovered in mining, quarrying and oil and gas extraction (up 3.6% month-over-month), after the wildfire in Alberta obstructed the oil production a month ago. Output also grew in sectors such as manufacturing (up 1.8%), utilities (up 3.1%), wholesale trade (up 0.4%) and finance & insurance (up 0.5%). On the other hand, Canadian construction sector shrank for a third consecutive month in June (down 0.4%), according to the report by Statistics Canada.

In case the monthly GDP growth came in line with expectations or accelerated even more in July, this would have a moderate-to-strong bullish effect on the Canadian Dollar. The official report is due out at 12:30 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.525% on September 29th, after which it closed at 0.494% to lose 2 basis points (0.02 percentage point) compared to September 28th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.778% on September 29th, or the highest level since September 23rd (0.787%), after which it fell to 0.734% at the close to lose 2.4 basis points (0.024 percentage point) compared to September 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 0.240% on September 29th from 0.244% on September 28th. The September 29th yield spread has been the lowest one since September 23rd, when the difference was 0.233%.

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 – 1.3159
R2 – 1.3171
R3 (Range Resistance – Sell) – 1.3184
R4 (Long Breakout) – 1.3221
R5 (Breakout Target 1) – 1.3265
R6 (Breakout Target 2) – 1.3284

S1 – 1.3133
S2 – 1.3121
S3 (Range Support – Buy) – 1.3108
S4 (Short Breakout) – 1.3071
S5 (Breakout Target 1) – 1.3027
S6 (Breakout Target 2) – 1.3008

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