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USD/CAD to Eye Opening Monthly Range on Strong Canada Employment

USD/CAD to Eye Opening Monthly Range on Strong Canada Employment

2014-10-10 07:00:00
David Song, Shuyang Ren,
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- Canada Employment to Increase for Fifth Month in 2014.

- Jobless Rate to Hold at Annualized 7.0% for Third Consecutive Month.

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Trading the News: Canada Net Change in Employment

The USD/CAD may face a larger pullback going into the end of the week should Canada’s Employment report show a meaningful rebound in job growth and fuel interest rate expectations.

What’s Expected:

USD/CAD Employment

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Why Is This Event Important:

An upbeat employment print may put increased pressure on the Bank of Canada (BoC) to further normalize monetary policy, but we would need to see a material shift in the forward-guidance to adopt a bullish outlook for the Canadian dollar as Governor Stephen Poloz continues to endorse a period of interest rate stability.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (SEP)

52.5

58.6

Raw Material Price Index (MoM) (AUG)

-1.5%

-2.2%

Gross Domestic Product (Annualized) (2Q)

2.7%

3.1%

Easing input costs along with the pickup in private sector activity may generate a strong pickup in job growth, and a positive print may threaten the opening monthly range in the USD/CAD as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (AUG)

1.60B

-0.61B

Retail Sales (MoM) (JUL)

0.5%

-0.1%

Wholesale Trade Sales (MoM) (JUL)

0.8%

-0.3%

However, weakening demand at home and abroad may drag on employment, and a dismal development may heighten the bullish sentiment surrounding the USD/CAD as it gives the BoC greater scope to retain its current policy for an extended period of time.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada Adds 20.0K or More Jobs

  • Need red, five-minute candle following the report for a potential short USD/CAD trade
  • If market reaction favors a long loonie trade, sell USD/CAD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bearish CAD Trade: Employment Report Disappoints

  • Need green, five-minute candle to consider a long USD/CAD position
  • Carry out the same setup as the bullish Canadian dollar trade, just in the opposite direction

Read More:

Price & Time: The Squeeze Play

Scalping the AUDUSD Opening Range- Longs Favored Above 8660

Potential Price Targets For The Release

USD/CAD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Will favor topside targets as inverse head-and-shoulders remains in play & RSI retains bullish momentum
  • Interim Resistance: 1.1300 pivot to 1.1320 (61.8% expansion)
  • Interim Support: 1.1050 (61.8% expansion) to 1.1065 (23.6% expansion)

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Impact that Canada Employment Change has had on CAD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG 2014

09/05/2014 12:30 GMT

10.0K

-11.0K

+12

+8

August 2014Canada Employment Change

USD/CAD Chart

The Canada employment report disappointed, with the region shedding 11.0K jobs in August after adding 41.7K the month prior. Despite a downtick in the participation rate to 66.0% from 66.1%, the unemployment rate held steady at an annualized 7.0% for the second consecutive month. As a result, it seems as though the Bank of Canada will retain its neutral tone for monetary policy and keep the benchmark interest rate at 1.00% throughout the remainder of the year in an effort to encourage a more robust recovery. The reaction to the dismal reading was short-lived as the USD/CAD chopped around the 1.0880 level during the North America trade, with the pair closing at 1.0879.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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