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USDCAD: Trading Canada’s Employment Report

USDCAD: Trading Canada’s Employment Report

2012-08-10 04:00:00
David Song, Strategist
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Trading the News: Canada Net Change in Employment

What’s Expected:

Time of release: 08/10/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: 6.0K

Previous: 7.3K

DailyFX Forecast: 0.0K to 10.0K

Why Is This Event Important:

The Canadian economy is expected to add another 6.0K jobs in July, and the ongoing improvement in the labor market may increase the appeal of the loonie as the Bank of Canada talks up speculation for higher borrowing costs. Indeed, BoC Governor Mark Carney argued that the region is in a ‘very different place’ compared to the rest of the world as the economic recovery continues to gather pace, and went onto say that the central bank may need to withdraw some monetary stimulus amid the record-rise in household indebtedness.

Recent Economic Developments

The Upside

Release

Expected

Actual

New Housing Price Index (MoM) (JUN)

0.2%

0.2%

Ivey Purchasing Manager Index s.a. (JUL)

52.0

62.8

Building Permits (MoM) (JUN)

-3.9%

-2.5%

The Downside

Release

Expected

Actual

Gross Domestic Product (MoM) (MAY)

0.2%

0.1%

Retail Sales (MoM) (MAY)

0.5%

0.3%

International Merchandise Trade (MAY)

-0.43B

-0.79B

The rise in business spending paired with the ongoing strength in housing may prop up the labor market, and a positive development may fuel speculation for a rate hike as BoC Governor Carney turns increasingly hawkish towards the economy. However, the slowdown in private sector consumption along with the weakness in global trade may drag on hiring, and a dismal print may spark a short-term reversal in the Canadian dollar as it dampens the scope for higher borrowing costs.

Potential Price Targets For The Release

USDCAD_Trading_Canadas_Employment_Report_body_ScreenShot073.png, USDCAD: Trading Canada’s Employment Report

As the USDCAD struggles to maintain the upward trend carried over from 2011, a positive development may spark a run at the April low (0.9799), and we will be keeping a close eye on the relative strength index as it approaches oversold territory. However, should the print miss market expectations, the data may ultimately trigger a short-term reversal in the exchange rate, and we may see the dollar-loonie retrace the sharp decline from earlier this week as the figures dampen expectations for a rate hike. For a complete technical outlook including intra-day scalp targets, refer to today's Winners/Losers report.

How To Trade This Event Risk

Projections for another rise in employment casts a bullish outlook for the loonie, and a positive development may pave the way for a long Canadian dollar trade as it fuels bets for higher borrowing costs. Therefore, if the economy adds 6.0K jobs or more in July, we will need to see a red, five-minute candle following the release to establish a sell entry on two-lots of USDCAD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in an effort to protect our gains.

In contrast, the slowdown in global trade along with the weakness in private sector consumption may push businesses to scale back on hiring, and a dismal print may dampen the appeal of the loonie as it limits the scope for a rate hike. As a result, if the print misses forecast, we will implement the same strategy for a long dollar-loonie trade as the short position laid out above, just in reserve.

Impact that Canada’s Employment report has had on CAD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

2012

07/06/2012 12:30 GMT

5.0K

7.3K

+24

+42

June 2012 Canada Net Change in Employment

USDCAD_Trading_Canadas_Employment_Report_body_ScreenShot072.png, USDCAD: Trading Canada’s Employment Report

Canadian employment increased another 7.3K in June after expanding 7.7K the month prior, while the jobless rate unexpectedly narrowed to 7.2% from 7.3% as discouraged workers left the labor force. Indeed, the dip to 1.0139 was short-lived as the USDCAD quickly pushed back above the 1.0150 figure, and the loonie continued to lose ground during the North American trade as the pair ended the day at 1.0190.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

View the Expo Presentation on ‘Trading the News’ For Additional Resources

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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