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

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3278-1.3373. The pair closed at 1.3351, edging up 0.48% compared to Mondays close. It has been the 191st gain in the past 367 trading days. The major pair has extended its advance to 1.70% so far during the current month, following a 0.18% gain in September.

At 8:19 GMT today USD/CAD was inching down 0.02% on the day to trade at 1.3348. The pair touched a daily high at 1.3361 during late Asian trade, overshooting the daily R1 level, and a daily low at 1.3332 during the early phase of the Asian trading session.

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

Fundamentals

United States

Services PMI by Markit – preliminary reading

Activity in the US sector of services probably increased at the same rate in October as the one reported in the prior month, with the corresponding preliminary Purchasing Managers’ Index coming in at a reading of 52.3, according to the median forecast by experts. The latter has been the highest PMI level since April, when a final 52.8 was reported. According to Markit, in September, new work increased at a moderate pace, new business growth slowed, while employment reached its lowest level since March 2013. At the same time, backlogs of work rose for a third straight month in September.

The PMI is based on data collected from a representative panel of more than 400 private sector companies, which encompasses industries such as transport and communication, financial intermediaries, business and personal services, computing & IT and hotels & restaurants. Values above the key level of 50.0 indicate predominant optimism (expansion in general activity). In case a faster than-expected expansion in services sector activity is reported, this would have a moderate bullish effect on the US dollar, as services contribute to a considerable portion of the US GDP. The preliminary reading by Markit Economics is due out at 13:45 GMT.

New Home Sales

Sales of new single-family homes probably decreased 1.0% to the seasonally adjusted annual rate of 600 000 in September, according to market expectations, from 609 000 reported in the preceding month.

In August, sales in the Northeast region fell the most (-34.3% to 23 000), followed by those in the South (-12.3% to 343 000) and those in the Midwest (-2.4% to 81 000). On the other hand, new home sales in the West area went up 8% to 162 000 during the same period.

The median sales price of new houses sold went down as low as USD 284 000 in August, after being at USD 293 100 in the preceding month. However, the average sales price rose to USD 353 600 in August from USD 352 000 in July. At the end of the month, the seasonally adjusted estimate of new houses for sale was 235 000, up 1.7% from a month ago. It represents a supply of 4.6 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 release the official figure at 14:00 GMT.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.570% on October 25th, or matching the high from October 20th, after which it closed at 0.543% to lose 1.9 basis points (0.019 percentage point) compared to October 24th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.860% on October 25th, or the highest level since October 14th (0.863%), after which it fell to 0.857% at the close to add 1.3 basis points (0.013 percentage point) compared to October 24th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.314% on October 25th from 0.282% on October 24th. The October 25th 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 – 1.3360
R2 – 1.3368
R3 (Range Resistance – Sell) – 1.3377
R4 (Long Breakout) – 1.3403
R5 (Breakout Target 1) – 1.3434
R6 (Breakout Target 2) – 1.3447

S1 – 1.3342
S2 – 1.3334
S3 (Range Support – Buy) – 1.3325
S4 (Short Breakout) – 1.3299
S5 (Breakout Target 1) – 1.3268
S6 (Breakout Target 2) – 1.3255

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