Forex Market: USD/CAD trading outlook for October 19th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3055-1.3141. The pair closed at 1.3109, edging down 0.14% compared to Mondays close. It has been the 175th drop in the past 362 trading days and also a fourth consecutive one. The daily low has been a level not seen since September 29th, when a daily low of 1.3048 was registered. The major pair has neutralized earlier advance and is now down 0.14% so far during the current month, following a 0.18% gain in September.

At 8:14 GMT today USD/CAD was inching down 0.02% on the day to trade at 1.3108. The pair touched a daily high at 1.3130 during early European trade, undershooting the range resistance level (R3), and a daily low at 1.3083 during the early phase of the Asian trading session.

On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports and other events as listed below.

Fundamentals

United States

Housing Starts and Building Permits

The number of housing starts in the United States probably rose 2.5% to 1.175 million units in September, according to market expectations, from the seasonally adjusted annual rate of 1.142 million during the prior month. The latter has been the lowest number of starts since May, when a revised down level of 1.128 million was reported. In August, starts of single-family houses fell at a monthly rate of 6% to 722 000, or the lowest level since October 2015, while starts of buildings with five units or more dropped 6.9% to reach 403 000. During the month, housing starts marked the largest increase in the Northeast (7.6%), followed by those in the Midwest (5.6%) and those in the West area (1.8%). On the other hand, housing starts were fewer in the South region (-14.8%).

Meanwhile, the number of building permits in the country probably went up 0.9% to 1.165 million in September from a revised up annual level of 1.152 million in August (1.139 million previously). If expectations were met, this would be the highest level since January, when the revised up 1.188 million units were reported. Single-family authorizations rose at a monthly rate of 3.7% to reach 737 000 units in August, while permits for buildings with five units or more were reported to have decreased 8.4% to 370 000. Authorizations were fewer in the South area (-3.4%), while increasing in the West (0.7%), in the Midwest (4.2%) and in the Northeast region (5.1%).

In case a higher-than-anticipated figure for either of the two indicators is reported, this would have a moderate bullish effect on the US dollar. The official housing data are due out at 12:30 GMT.

Fed speakers

At 12:45 GMT the Fed President for San Francisco and also a FOMC member, John Williams, is expected to speak on the diversity in the financial system in Newark, New Jersey.

At 17:30 GMT the Fed President for Dallas, Robert Kaplan, who does not have a voting right but takes part in policy discussions, is to take a statement at luncheon, sponsored by Fort Worth Chamber of Commerce in Fort Worth.

Fed’s 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. The central bank last cut its benchmark by 0.25% to the current level at the July 15th 2015 meeting. Back then, 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 September meeting all key rates were left intact. Policy makers expected a substantial economic recovery during the second half of the year, the central bank’s Statement revealed.

According to excerpts from the BoC Statement from September 7th 2016: ” The economy is expected to rebound in the third quarter as oil production recovers, rebuilding commences in Alberta, and consumer spending gets an additional lift from Canada Child Benefit payments. As federal infrastructure spending starts to have more impact, growth in the fourth quarter is projected to remain above potential. While the strength in exports during July was encouraging, the ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated in July.”

”Inflation is roughly in line with the Bank’s expectations. Total CPI inflation is below the 2 per cent target, mainly because of the temporary effects of lower consumer energy prices. Measures of core inflation remain around 2 per cent, reflecting offsetting effects of excess capacity and past exchange rate depreciation.”

”On balance, risks to the profile for inflation have tilted somewhat to the downside since July. At the same time, while there are preliminary signs of a possible moderation in the Vancouver housing market, financial vulnerabilities associated with household imbalances remain elevated and continue to rise.”

The official policy decision is scheduled to be announced at 14:00 GMT, followed by a press conference with BoC Governor, Stephen Poloz, at 15:15 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.607% on October 18th, after which it closed at 0.589% to lose 1.2 basis points (0.012 percentage point) compared to October 17th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.831% on October 18th, after which it fell to 0.803% at the close to lose 1.6 basis points (0.016 percentage point) compared to October 17th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.214% on October 18th from 0.218% on October 17th. The October 18th yield spread has been the lowest one since September 22nd, when the difference was 0.203%.

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 – 1.3117
R2 – 1.3125
R3 (Range Resistance – Sell) – 1.3133
R4 (Long Breakout) – 1.3156
R5 (Breakout Target 1) – 1.3184
R6 (Breakout Target 2) – 1.3195

S1 – 1.3101
S2 – 1.3093
S3 (Range Support – Buy) – 1.3085
S4 (Short Breakout) – 1.3062
S5 (Breakout Target 1) – 1.3034
S6 (Breakout Target 2) – 1.3023

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

Central Pivot Point – 1.3183
R1 – 1.3264
R2 – 1.3388
R3 – 1.3469
R4 – 1.3549

S1 – 1.3059
S2 – 1.2978
S3 – 1.2854
S4 – 1.2729

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

Central Pivot Point – 1.3077
R1 – 1.3332
R2 – 1.3535
R3 – 1.3790
R4 – 1.4044

S1 – 1.2874
S2 – 1.2619
S3 – 1.2416
S4 – 1.2212