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How stable is the USD/CAD Range? • Levels to Watch • The USD/CAD is in a loosely defined upward trending channel. However, the lower bound o the formation has the moist validity and will dictate our set-up. Channel support is also reinforced by the 20-Day SMA at 1.0447 which has also come to define the lower bound. Additionally, we are seeing the convergence of the 50.0% Fibo of 0.9925- 1.0856 at 1.0392. Suggested Strategy |
Trading Tip – The USD/CAD has bounced from support as we write this report which may make our set-up irrelevant unless we get another test. We could see bullish “loonie” sentiment return on the back of a strong U.S. labor report giving making the trade relevant again. If bullish sentiment continues then we would wait for a break above 1.0600 before considering getting long with a target of 1.0856-5/25 high. Our current set-up contradicts our previous long CAD/JPY trade unless we see a bullish greenback reaction on the back of higher U.S. interest rate expectations to the upcoming labor report in conjunction with broader optimism. Given that currently markets are only pricing less than a 30% chance of Fed rate hike by November, this is unlikely. Therefore, considering the broader themes we could favor our current position, but the recent BoC rate hike and easing concerns over Europe do make a case for bullish “loonie” sentiment.
Event Risk for Canada & U.S.
Canada – The BoC’s dovish comments following their rate hike of 25 bps may diminish the impact of upcoming fundamental data. Nevertheless, the upcoming employment report will impact growth expectations for the commodity driven economy. Signs that domestic growth has the ability to offset potential weakness in demand from abroad will be supportive for the “loonie.” The Ivey PMI manufacturing release will also posses market moving potential as the sector has been the main driver of growth. However, they may get overshadowed by the U.S. event risk scheduled on the day.
U.S. – The U.S. non-farm payroll report is forecasted to show job growth of around a half million in May which could ease concerns over the issues in Europe and provide broader optimism. Job growth in the world’s largest economy may be enough to offset concerns about the diminishing growth prospects in Europe and the potential slowdown in China. Additionally, signs of sustainable job growth could raise interest rate expectations and change the dollar’s relationship with risk if it loses its status as a funding currency. However, speculation is that the census is still accounting for the majority of new hires which will diminish its impact especially considering the broader trends.
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