Forex Market: USD/CAD daily trading outlook

Thursday’s trade saw USD/CAD within the range of 1.3822-1.3903. The pair closed at 1.3841, shedding 0.27% on a daily basis, while neutralizing the 0.27% gain from December 30th. In weekly terms, USD/CAD added 0.14% last week, which has been a third gain in the past four weeks. The pair has appreciated 3.58% in December, or at the sharpest monthly rate since July 2015, when a 4.77% surge was registered.

At 9:41 GMT today USD/CAD was gaining 0.57% for the day to trade at 1.3916. The pair touched a daily high at 1.3940 at 9:09 GMT, testing the high from December 29th (1.3941), and a daily low at 1.3817 during the early hours of the Asian trading session. Support may be received in proximity to the hourly 55-period EMA (1.3878), then – at the hourly 200-period EMA (1.3860), and finally – close to the lower boundary of the range-like formation, which has formed since December 23rd (the 1.3810-1.3825 area). Resistance may be expected close to the upper boundary of the range (1.3950-1.3965).

On Monday USD/CAD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers’ Index for December probably confirmed the flash estimate of 51.3, which was reported on December 16th. If expectations were met, this would be the lowest PMI reading since October 2012, when the final gauge was reported at 51.0. In November the final seasonally adjusted PMI stood at 52.8, inching up from a preliminary value of 52.6.

According to preliminary data by Markit, ”Manufacturing production increased only moderately in December, with the rate of expansion the weakest for just over two years. Softer output growth was widely linked to a weaker-than-expected upturn in new business volumes and a corresponding drop in capacity pressures. Reflecting this, latest data highlighted a decrease in backlogs of work for the second month running, and the pace of decline was the fastest since late-2012.”

”Manufacturers were more cautious about their purchasing activity and inventory volumes in December. Input buying expanded at the slowest pace for just over two years, while pre-production stocks decreased for the first time since June 2014. Finished goods inventories rose marginally in December, but some manufacturers linked the upturn to weaker-than-expected sales at the end of the year”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for December confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.

Manufacturing PMI by the ISM

US gauge for manufacturing sector activity probably remained in the zone of contraction for a second consecutive month in December, coming in at 49.0, according to expectations, up from 48.6 in November. The latter has been the lowest PMI reading since June 2009, when the barometer was reported at a level of 44.8.

The New Orders Index plunged to 48.9 in November from 52.9 in October. The sub-gauge of production was reported at 49.2, falling from 52.9 in October. The index of employment rose to a value of 51.3 in November from 47.6 in the preceding month. The gauge of prices was at 35.5 in November, down from 39.0 in October, which suggested lower prices of raw materials for a 13th month in a row. In November, 5 manufacturing industries reported growth, 10 reported contraction and 3 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).

In case the PMI improved more than anticipated in December, this would have a strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Canada

RBC Manufacturing PMI

At 14:30 GMT Royal Bank of Canada (RBC) is to report on manufacturing activity in December. The corresponding Manufacturing Purchasing Managers’ Index stood in the zone of contraction for the fourth straight month in November, coming in at a reading of 48.6. The Manufacturing PMI stood at 48.0 in October, which has been the lowest level ever recorded.

The PMI report is based on data collected from monthly replies to questionnaires sent to supply managers in over 400 industrial companies. The PMI is a compound index based on five individual indexes: new orders, production, employment, delivery time, stocks of purchases. Values of the index above the key level of 50.0 indicate overall increase in activity in the sector, while readings below 50.0 are indicative of contraction in activity. PMIs are earlier indicators of economic conditions published on a monthly basis and are available much before the publication of relevant data from government authorities. This way they provide an earlier insight about economic development trends.

In case the gauge showed an improvement in December, this would have a moderate bullish effect on the Canadian dollar.

Correlation with other Majors

Taking into account the week ended on December 31st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

USD/CAD to EUR/USD (0.8624, or very strong)
USD/CAD to GBP/USD (0.8399, or very strong)
USD/CAD to USD/JPY (0.2722, or weak)
USD/CAD to NZD/USD (-0.0917, or very weak)
USD/CAD to AUD/USD (-0.7888, or strong)
USD/CAD to USD/CHF (-0.7900, or strong)

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

2. USD/CAD moved almost independently compared to NZD/USD during the past week.

3. USD/CAD moved almost equally in one and the same direction with GBP/USD and EUR/USD during the period in question.