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USD/CAD to Eye 1.2800 Resistance on Dismal Canada Employment Report

USD/CAD to Eye 1.2800 Resistance on Dismal Canada Employment Report

David Song, Shuyang Ren,

- Canada Employment to Hold Flat in March After Contracting 1.0K the Month Prior.

- Jobless Rate to Hold Steady at Annualized 6.8% for Second Straight Month.

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

Trading the News: Canada Net Change in Employment

Waning job growth in Canada may spark a further advance in USD/CAD as it puts increased pressure on the Bank of Canada (BoC) to further reduce the benchmark interest rate in 2015.

What’s Expected:

USD/CAD Canada Employment

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the wait-and-see approach endorsed by BoC Governor Stephen Poloz, a weakening outlook for the labor market may dampen the appeal of the Canadian dollar and push USD/CAD back towards the 1.2800 resistance zone as market participants increase bets for lower borrowing-costs in Canada.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (MAR)

49.9

47.9

Retail Sales (MoM) (FEB)

-0.8%

-1.7%

Wholesale Trade Sales (MoM) (JAN)

-0.8%

-3.1%

Canadian firms may continue to scale back on hiring amid the ongoing contraction in private-sector consumption, and another dismal employment report may put increased pressure on the BoC to implement another rate cut later this year in an effort to encourage a stronger recovery.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

BoC Senior Loan Officer Survey (4Q)

-1.0

6.7

International Merchandise Trade (FEB)

-2.00B

-0.98B

Existing Home Sales (MoM) (FEB)

--

1.0%

Nevertheless, the improving terms of trade along with signs of a ‘soft-landing’ in the housing market may generate a pickup in job growth, and a positive development may heighten the appeal of the Canadian dollar as it limits the BoC’s scope to further embark on its easing cycle.

How To Trade This Event Risk(Video)

Bearish CAD Trade: Canada Fails to Add Jobs in March

  • Need green, five-minute candle following the report for a potential long USD/CAD trade
  • If market reaction favors a bearish loonie trade, buy USD/CAD with two separate position
  • Set stop at the near-by swing low/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

Bullish CAD Trade: Employment Report Exceeds Market Expectations

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

Read More:

Price & Time: USD/CAD Continues to Tease

EUR/USD Searches for Support- Retail Interest Wanes Ahead of ECB

Potential Price Targets For The Release

USD/CAD Daily Chart

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Break of the bearish RSI momentum may highlight a larger rebound and threaten the top of the range in USD/CAD.
  • Interim Resistance: 1.2797 (Feb. high) to 1.2800 (38.2% expansion)
  • Interim Support: 1.2390 (161.8% expansion) to 1.2420 (161.8% 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)

FEB 2015

03/13/2015 12:30 GMT

-5.0K

-1.0K

-21

+18

FebruaryCanada Employment Change

USD/CAD Chart

The Canadian labor market shrank less than estimate, with the economy shedding 1.0K jobs in February following a 35.4K expansion the month prior. At the same time, the jobless rate unexpectedly bounced back to an annualized 6.8% from 6.6% the month prior, with the participation rate increasing to 65.8% from 65.7% as discouraged workers returned to the labor force. Despite the initial bullish reaction in Canadian dollar, market reaction was short-lived as USD/CAD reversed course from the 1.2700 handle to end the day at 1.2767.

--- 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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