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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

David Song, Shuyang Ren,

- Canada Employment to Increase for Fifth Month in 2014.

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

For more updates, sign up for David's e-mail distribution list.

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

Click Here for the DailyFX Calendar

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)

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

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.

To be added to David's e-mail distribution list, please follow this link.

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