pair to range trade

USDCAD Range a Tricky Setup with Friday's Employment Data

We have a prominent and well-known market moving economic indicator scheduled for release for in the early hours of Friday’s US session. The US non-farm payrolls (NFP) release is scheduled to print at 13:30 GMT.

How stable is the USDCAD Range? •Levels to Watch: -Range Top:       1.0850 (Trend, Internal Pivot) -Range Bottom: 1.0600 (Fibs, Internal Pivot) •In the grander scheme of things, the health of the US and Canadian economies are closely tied by their trade links. This offers a very pronounced buffer to volatility to this pair; but it does not altogether prevent a bias or short-term volatility. A surprise burst in price action is the bigger concern for this pair. Both the US and Canada are scheduled to release October employment figures Friday morning, and this data is a consistent market mover. •Since curbing the steady advance that carried the dollar high through the second half of October, we have seen a pull back from USDCAD that defines a loose congestion pattern. The 1.06 level is not only a round figure; it is also a notable 50% Fib and a dramatic pivot. Volatility is the critical key to this pay however, not easily definable levels. Suggested Strategy •Long: A reduced size entry order will be placed very close to support at 1.0615. •Stop: Placing a stop at 1.0550 is reasonable to cover a moderate false breakout attempt. To secure profit, move the stop on the second lot to breakeven when the first target hits. •Target: The first objective is greater than initial risk (95) at 1.0710. The second is 1.0800.

Trading Tip – We have a prominent and well-known market moving economic indicator scheduled for release for in the early hours of Friday’s US session. The US non-farm payrolls (NFP) release is scheduled to print at 13:30 GMT. This makes for dangerous range trading conditions for any pair that is based on the US dollar or otherwise has a distinct correlation to risk trends. For USDCAD, the danger is all the more real with Canada scheduled to release its own labor statistics just an hour and a half earlier. This is a distinct risk; but there still is an opportunity to be found here for those that are willing to accept the danger. Over the past two weeks, we have seen this pair turn from constructive rally into a well-defined and broad range. The lower boundary of this zone was stretched yesterday; but the even 1.06 figure holds just as much prominence as the 1.0650 floor established earlier in the week. Accounting for Friday’s data is tricky. However, we have seen in recent months that the impact from both indicators on price action has eased as steady trends in the data and a general shift in focus to underlying risk appetite has conditioned traders to moderate surprises. On the other hand, a meaningful response would help our range setup along. An increase in volatility and a bias that ultimately favors a bullish drive would help our position reach its targets much more quickly. What’s more, with an aggressive entry and relatively wide stop, a moderate surprise against our position may still succumb to support. Nonetheless, this level of event risk demands a reduced position size.

Event Risk for the US and Canada

US – There is only one major piece of scheduled event risk for the dollar over the coming week. Unfortunately, this single indicator can dramatically alter the currency’s pace and direction all by itself. The US non-farm payrolls report has historically stood as the top market moving economic indicator for the entire currency market. However, in recent months, its impact has eased significantly. There are a number of reasons for why this may be; but the most logical explanation is that the steady trend in smaller monthly job losses offers limited influence over growth and interest rate speculation. Nonetheless, a sharp reaction to a notable surprise cannot be discounted. Another indicator to take note of Friday is the consumer credit report for September. A sign of consumer borrowing and consumption, this indicator is a perfect complement the to the NFP release.

Canada – The market’s attention on first Friday of each month is usually reserved for the US employment report. And since Canada and the US are each other’s largest trade partner, this cross-border release that much more of an impact on loonie price action. However, in the fray, we should not lose sight of the economic data crossing the wires in Canada. On the same day (just an hour and a half earlier than the US data), Canada will report its own net change in employment for the month of October. The month-to-month trend has been choppy; so we will need to see a significant surprise from the change or a remarkable shift in the jobless rate to establish a major move from the Canadian dollar.

Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.

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