EUR/CAD Under Pressure Following BoC Rate Hike, Ivey PMI Report; Traders Shift Their Focus to the Canadian Employment Report

Fundamental Outlook

Employment in Canada is expected to jump 30,000 for the month of August after falling 9,300 the previous month. Market participants are sure to keep a close eye on the breakdown of the report, specifically the full time employment change because the reading dropped a massive 139,000, while the part time labor force added 129,000 in July. At the same time, the unemployment rate unexpectedly increased to 8.0 percent from 7.9 percent to mark the highest rate of unemployed persons since May of this year. Indeed, this did not bode for Canada as figures signaled that businesses were fearful of adding full time workers amid uncertainty in the global economy. In turn, the single currency lost ground against most of its counterparts. Ahead of Friday’s report, economists are more optimistic than last month, calling for a 30,000 increase in Canadian employment. Indeed, the headline figure is expected to receive a large boost from educational services, which tumbled last month; however increases in other sectors will add upward pressure onto the single currency. What does this mean for the loonie?

Today, the Bank of Canada increased their key overnight lending rate twenty five basis points as widely expected, and hinted at further rate hikes. The committee mentioned “exceptionally stimulative” financial conditions in Canada and became the latest central bank to adopt the language of “unusual” uncertainty surrounding the outlook. As a result, the Canadian dollar pushed higher against most major currencies. Also fueling momentum in the CAD was the Ivey purchasing managers’ index which topped expectations. Taking a look at the breakdown of the report, the decline in the employment index adds some concern for policy makers, while the jump in prices may keep the central bank on alert. Overall, the data exceeded expectations, and paired with the key overnight lending rate, lead the loonie to rally today. Going forward, an employment report which surpasses expectations, with a strong rise in full time employment may fuel further CAD strength, which will validate my short EURCAD position.

Technical Outlook

EURCAD Daily Chart

Charts Created Using FXCM’S Strategy Trader

EURCAD: The pair has extended its three day decline, and now looks poised to crossover below the 100-day SMA. Indeed, this moving average has held as a moving average of support since July 14th. If price action can manage to break below this level, downside risks towards 1.300 will likely be the result.

For More Technical Analysis Visit the DailyFX Technical Page

Written by Michael Wright, Currency Analyst

To Receive Future Articles by Email, please contact me at mwright@fxcm.com

Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast