Forex Market: USD/CAD trading outlook for October 28th 2016

Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3352-1.3408. The pair closed at 1.3386, inching up 0.04% compared to Wednesdays close. It has been the 193rd gain in the past 369 trading days and also a third consecutive one. The daily high has been a level not seen since March 9th, when a high of 1.3448 was registered. The major pair has extended its advance to 1.97% so far during the current month, following a 0.18% gain in September.

At 8:24 GMT today USD/CAD was edging up 0.08% on the day to trade at 1.3397. The pair touched a daily high at 1.3400 during early European trade, undershooting the range resistance level (R3), and a daily low at 1.3374 during the early phase of the Asian trading session.

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

Fundamentals

United States

Gross Domestic Product – preliminary estimate

The preliminary estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 2.5% in the third quarter of the year, according to market expectations. If so, this would be the fastest annual rate of growth since the second quarter of 2015, when US economy grew at a final 3.9%. The final GDP estimate for Q2, reported on September 29th, pointed to an annual growth of 1.4%, a revision up compared to the second GDP estimate.

Consumer spending in the country rose 4.3% year-on-year in the second quarter of 2016, decelerating from a 4.4% surge in the second estimate, and following a 1.5% expansion in the first quarter of 2016.

Fixed investment shrank at a final 1.1% in Q2, improving from a 2.5% contraction in the second estimate, as non-residential investment grew 1.0%, while residential investment shrank 7.7%. Fixed investment was 0.4% lower in Q1 2016 compared to the same period a year ago.

US exports grew at an annualized rate of 1.8% in Q2, following a 1.2% expansion in the second estimate, while rising 0.3% in Q1 2016. At the same time, US imports went up at a final 0.2% year-on-year in the first quarter of 2016, decelerating from a 0.3% increase in the second estimate and following a 0.5% decline in the first quarter of the year, according to data by the US Bureau of Economic Analysis.

In case the preliminary GDP estimate met or even outpaced expectations in Q3, this would have a strong bullish effect on the US Dollar. The preliminary report is due out at 12:30 GMT.

Employment Cost Index

The Employment Cost Index (ECI) for the United States probably rose 0.6% during the third quarter of the year compared to Q2. If so, it would match the rate of growth, which has been registered in the previous two quarters.

This index measures the change in the price of labor, defined as compensation per employee hour worked. It shows changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. The ECI is considered as an indicator, reflecting cost pressures within companies that could trigger price inflation for finished goods and services. A larger-than-expected rate of increase would generally provide support to the US dollar. The Bureau of Labor Statistics is to release the quarterly data at 12:30 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 eased in October from a month ago. The final reading of the corresponding index, which usually comes out two weeks after the preliminary data, probably was at 88.1, up from a preliminary value of 87.9. The latter has been the lowest reading since September 2015. In September this year the index stood at a final reading of 91.2, up from a preliminary value of 89.8. 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 up to 105.5 in October from a final reading of 104.2 in September. The sub-index of consumer expectations decelerated to a flash reading of 76.6 in October from a final value of 82.7 in September.

Respondents in the October survey expect that the rate of inflation during the next year will probably be 2.4%, or the same as expected in the September survey.

In case the final value of the October consumer sentiment index met or even 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.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went up as high as 0.588% on October 27th, or the highest level since October 19th (0.604%), after which it closed at 0.583% to add 2.5 basis points (0.025 percentage point) compared to October 26th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.896% on October 27th, or the highest level since June 3rd (0.899%), after which it fell to 0.884% at the close to add 1.2 basis points (0.012 percentage point) compared to October 26th.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.301% on October 27th from 0.314% on October 26th. The October 27th yield spread has been the lowest one since October 24th, when the difference was 0.282%.

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 – 1.3391
R2 – 1.3396
R3 (Range Resistance – Sell) – 1.3401
R4 (Long Breakout) – 1.3417
R5 (Breakout Target 1) – 1.3435
R6 (Breakout Target 2) – 1.3442

S1 – 1.3381
S2 – 1.3376
S3 (Range Support – Buy) – 1.3371
S4 (Short Breakout) – 1.3355
S5 (Breakout Target 1) – 1.3337
S6 (Breakout Target 2) – 1.3330

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