Forex Market: USD/CAD trading outlook for October 24th 2016

Friday’s trade (in GMT terms) saw USD/CAD within the range of 1.3224-1.3356. The pair closed at 1.3338, rising 0.82% compared to Thursdays close. It has been the 190th gain in the past 365 trading days and also a third consecutive one. The daily high has been a level not seen since March 16th, when a high of 1.3407 was registered. In weekly terms, USD/CAD added 1.51% to its value during the past week. It has been the 16th gain in the past 42 weeks and also the sharpest one since the week ended on May 8th. The major pair has extended its advance to 1.60% so far during the current month, following a 0.18% gain in September.

At 8:27 GMT today USD/CAD was inching up 0.04% on the day to trade at 1.3343. The pair touched a daily high at 1.3360 during early Asian trade, undershooting the daily R2 level, and a daily low at 1.3325 during the late phase of the Asian trading session.

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

Fundamentals

United States

Manufacturing PMI by Markit – flash reading

Activity in US manufacturing sector probably rose at a slightly higher rate in October from a month ago. The corresponding preliminary Manufacturing PMI probably accelerated to a reading of 51.6 in the current month, according to the median forecast by analysts, from a final 51.5 in September. The latter has been the lowest reading since June.

According to the final report by Markit, released on October 3rd: ”Slower rates of output and new order growth were the main factors weighing on the headline index, which more than offset a stronger contribution from the staff hiring component.”

”September data highlighted that production growth eased to a three-month low, driven by a weaker upturn in new work and greater efforts to streamline stocks of finished goods. The latest increase in new business volumes was the slowest seen so far in 2016. Some survey respondents commented on delays to decision making among clients ahead of the presidential election.”

”Softer new business growth resulted in more cautious inventory policies across the manufacturing sector. Stocks of finished goods decreased for the fourth month running and at the fastest pace since late-2015. Pre-production inventories also fell in September, but the rate of decline was only marginal”, Markit stated.

Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the flash PMI for October came in line with expectations or accelerated even further, this would cause a moderate bullish impact on the US dollar. The preliminary reading is due out at 13:45 GMT.

Fed speakers

At 13:00 GMT the Fed President for New York, William Dudley, is expected to give opening remarks at the second annual conference on the Evolving Structure of the U.S. Treasury Market, which will be hosted by the Federal Reserve Bank of New York.

At 13:05 GMT the Fed President for St. Louis, James Bullard, is to give presentation to Association for University Business and Economic Research in Fayetteville, Arkansas.

At 17:30 GMT the Fed President for Chicago, Charles Evans, is to speak at the Civic Affairs Society of the University Club of Chicago Luncheon in Chicago.

At 18:00 GMT Federal Reserve Board Governor, Jerome Powell, is expected to attend a panel discussion about the future of the settlement process for Treasury market transactions at the second annual conference on the Evolving Structure of the US Treasury Market.

Canada

Wholesale Sales

Wholesale sales in Canada probably rose 0.6% in August compared to a month ago, according to market expectations. If so, this would be the fifth consecutive month of sales increase. In July compared to June the value of sales made by wholesalers in the country increased 0.3%. Higher wholesale sales are indicative of a more active retail trade and, respectively, consumption. Therefore, a larger-than-projected increase in wholesale sales would have a limited-to-moderate bullish effect on the Canadian Dollar. Statistics Canada is to release the official report at 12:30 GMT.

Correlation with other Majors

Taking into account the business week ended on October 21st 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/CHF (0.9496, or very strong)
USD/CAD to USD/JPY (0.2751, or weak)
USD/CAD to NZD/USD (-0.2532, or weak)
USD/CAD to GBP/USD (-0.2754, or weak)
USD/CAD to AUD/USD (-0.6930, or strong)
USD/CAD to EUR/USD (-0.9649, or very strong)

1. During the examined period USD/CAD moved strongly in the opposite direction compared to AUD/USD.

2. USD/CAD moved almost equally in the opposite direction compared to EUR/USD during the past week, while moving almost equally in one and the same direction with USD/CHF.

3. The correlation between USD/CAD and USD/JPY, USD/CAD and NZD/USD, USD/CAD and GBP/USD was insignificant.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.555% on October 21st, after which it closed at 0.522% to lose 3 basis points (0.03 percentage point) compared to October 20th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.840% on October 21st, or the highest level since October 17th (0.847%), after which it fell to 0.828% at the close to add 0.005 percentage point compared to October 20th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.306% on October 21st from 0.271% on October 20th. The October 21st yield spread has been the largest one since June 2nd, when the difference was 0.321%.

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 – 1.3350
R2 – 1.3362
R3 (Range Resistance – Sell) – 1.3374
R4 (Long Breakout) – 1.3411
R5 (Breakout Target 1) – 1.3453
R6 (Breakout Target 2) – 1.3471

S1 – 1.3326
S2 – 1.3314
S3 (Range Support – Buy) – 1.3302
S4 (Short Breakout) – 1.3265
S5 (Breakout Target 1) – 1.3223
S6 (Breakout Target 2) – 1.3205

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

Central Pivot Point – 1.3233
R1 – 1.3461
R2 – 1.3583
R3 – 1.3811
R4 – 1.4038

S1 – 1.3111
S2 – 1.2883
S3 – 1.2761
S4 – 1.2638

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